Schedule F - Profit or Loss From Farming

          Much like sole proprietors in many businesses use Schedule C to report their business income and expenses, farmers use Schedule F to report their income and expenses from their business - farming.  The definition of a farming business is virtually any business involving cultivating land or raising or harvesting agricultural or horticultural products.  In addition, it includes the operation of a livestock, poultry, dairy, fish, bee, or fruit farm, or nursery or orchard.  Also included would be crop shares if the taxpayer is materially involved in management or production.

         Schedule F would be filed with your income tax return, including Form 1040, Form 1040NR, Form 1041, Form 1065, and Form 1065-B.  The form is relatively simple to complete.  There are separate sections for cash method or accrual method reporting of farming income.  The expense or deduction section is the same for both methods.

           In the income sections of the Schedule F, the taxpayer reports sales of livestock or other items which were purchased for resale, the cost of that livestock or those other items, sales of livestock or other items which were raised, and any payments received from an agricultural program or distributions from a cooperative.  Under the accrual method, the beginning and ending inventory amounts for livestock and other products are also reported, and used in the computation of the cost of livestock and other products sold during the year.

           Any expenses incurred in the operation of the farm are reported in Part II of the Schedule F.  Some of these expenses are car and truck expenses, employee benefit programs, feed purchased, chemicals, depreciation, Section 179 expense deduction, freight and trucking, fertilizers and lime, repairs and maintenance, seeds and plants, labor hired, custom hire, storage and warehousing, supplies, utilities, taxes, breeding and medicine, and conservation expenses.  Any other reasonable and necessary expenses related to the production of farming income would also be deductible.

            If the Schedule F shows that the farmer has produced a loss from farming for the year, the determination needs to be made whether or not the loss is a passive activity loss.  If he or she did not materially participate, the loss would be considered a passive activity loss.  A passive activity farm loss needs to be reported on Form 8582 to compute the deductible loss.  If part of the loss is disallowed, only the allowable part would be claimed on Schedule F.    For purposes of determining material participation, disabled or retired farmers are treated as having materially participated if they materially participated for five out of the prior eight years before their disability or retirement.  A net operating loss from farming can be carried back five years.

                     If you need help with figuring out your income taxes, including which schedules you might need to file and which expenses are allowed as deductions, you are in the right place.  Try out the CPA search feature on this website to find a qualified professional in your area to assist you with all your tax and accounting needs.