If you are a farmer and your farming business is a sole proprietorship, you must file Schedule F (titled "Profit or Loss from Farming") to report your agricultural business’s net profit or loss for the tax year. Livestock, dairy, poultry, fish and fruit farmers as well as owner/operators of plantations, ranches, ranges, nurseries or orchards are considered farmers for the purposes of Schedule F. Your farming profit or loss is then transferred to a form 1040 for computing your total tax liability. Schedule F is to farmers what Schedule C is to other sole proprietors.
- IRS Schedule F is used to report taxable income from farming or agricultural activities.
- This schedule must be included on a form 1040 tax return regardless of the type of farm income and whether it's a primary business activity or not.
- Schedule F also allows for various farm-related credits and deductions.
Accounting for Farming Activities
Schedule F asks about your principal farming activity or crop; your income from selling livestock, produce, grains or other products; and whether you received farm income from cooperative distributions, agricultural program payments, Commodity Credit Corporation loans, crop insurance proceeds, federal crop disaster payments or any other sources. Schedule F provides different ways to account for your income depending on whether you use the cash or accrual method.
You’ll also need to fill out Schedule F to claim tax deductions for your farming business, which will lower your tax bill. Deductions you may be able to claim include but are not limited to the expenses you paid for a business vehicle, chemicals, conservation, custom hire, depreciation, employee benefits, feed, fertilizers, freight and trucking, gasoline and other fuel, insurance, interest, hired labor, pension and profit-sharing plans, repairs and maintenance, seeds and plants, storage and warehousing, supplies, taxes, utilities, veterinary fees and rent or lease fees for vehicles, machinery, equipment, land and the like.
In U.S. agricultural policy, farm income can be divided as follows:
Gross Cash Income: the sum of all receipts from the sale of crops, livestock and farm-related goods and services, as well as any direct payments from the government.
Gross Farm Income: the same as gross cash income with the addition of non-money income, such as the value of home consumption of self-produced food.
Net Cash Income: the gross cash income less all cash expenses, such as for feed, seed, fertilizer, property taxes, interest on debt, wagers, contract labor and rent to non-operator landlords.
Net Farm Income: the gross farm income less cash expenses and non-cash expenses, such as capital consumption and farm household expenses.
Net Cash Income: a short-term measure of cash flow.
Schedule F also asks if you made any payments during the tax year that required you to file form 1099 and if you have filed it. An example of a case where you would need to file a 1099 is if you hired an independent contractor to perform more than $600 worth of work, such as transporting your produce to a weekly farmer’s market, for your farm business.
For more information, IRS Publication 225, or the Farmer's Tax Guide, is a document that helps individuals involved in agribusiness navigate the farming-specific tax code. The document details and outlines how the federal government taxes farms. Individuals will be liable for taxes if the farm is operated for profit, whether the taxpayer owns the farm or is a tenant. IRS Publication 225 outlines the different accounting methods that farmers may use for running their operations and how farmers must report farm income. Along with IRS Publication 225, the IRS publishes IRS Publication 51, a document specific to the employers of agricultural workers. Publication 51 provides guidance on how individuals who employ workers in the agribusiness must comply with tax withholdings. Sometimes the U.S. Department of Labor requires employers to register with them, and also does not allow employers to label farm employees as independent contractors.