Schedule F: Profit or Loss from Farming—Definition, Uses, Filing (2024)

What Is Schedule F: Profit or Loss from Farming?

If you are a farmer and your farming business is a sole proprietorship, you must file Schedule F (Profit or Loss from Farming) to report the net profit or loss for your agricultural business for the tax year.

Livestock, dairy, poultry, fish, and fruit farmers, as well as owners/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.

Key Takeaways

Schedule F is used to report taxable income earned from farming or agricultural activities.
This schedule must be included on a Form 1040 tax return, regardless of the type of farm income.
Deductible expenses such as seed, fertilizer, equipment maintenance, and property taxes are also reported on Schedule F to determine the taxable income from farming.
Schedule F also allows for various farm-related credits and deductions.

What Is Schedule F Used for?

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 Corp. 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.

Schedule F: Profit or Loss from Farming—Definition, Uses, Filing (1)

All pages of Schedule F are available on the IRS website.

Who Uses Schedule F?

Schedule F eligibility hinges on the engagement in farming or ranching activities. This may or may not relate to regular and continuous involvement in the cultivation of soil, livestock raising, or other agricultural endeavors.

The IRS typically expects a genuine profit motive. This means that while not every year needs to be profitable, there should be continued effort to operate the farm as a business with the expectation of profitability over time. Schedule F can be used in a variety of situations; for example, it can be used by individuals owning or leasing agricultural land, operating a family farm, or engaging in partnerships.

The IRS is also flexible when it comes to defining what "farming activities" means. Eligibility extends to different types of farming activities such as crop production, livestock raising, poultry farming, and aquaculture. The IRS is also flexible on size, as there is no strict gross income threshold for Schedule F.

Cash Method vs. Accrual Method

Farmers who use the cash method of accounting would report revenue in the tax year when it is received from buyers. Farming expenses are deducted in the tax year when they are paid. Under the accrual method, revenue and expenses are reported in the year when transactions occur, even if money is received or paid out the following year.

If a taxpayer chooses to file an 'Accrual' return, they must complete Parts II, III, and a portion of Part I. Note that some entities may be required to use the accrual method.

Income Sources on Schedule F

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: Gross cash income less all cash expenses, such as for feed, seed, fertilizer, property taxes, interest on debt, wages, contract labor, and rent to non-operator landlords. It’s a short-term measure of cash flow.
Net farm income: Gross farm income less cash expenses and noncash expenses, such as capital consumption and farm household expenses. It’s a long-term measure of the farm’s survivability as an income-earning business.

Individuals will be liable for taxes if the farm is operated for profit, whether thetaxpayerowns the farm or is a tenant.

Deductible Expenses

You’ll also need to fill out Schedule F to claim tax deductions for your farming business, which will lower your tax bill. Deductions that you may be able to claim include—but are not limited to—the expenses you paid for:

Business vehicle(s)
Chemicals
Conservation
Depreciation
Employee benefits
Feed
Fertilizers
Freight and trucking
Gasoline and other fuel
Hired labor
Insurance
Interest
Pension and profit-sharing plans
Rent or lease fees for vehicles, machinery, equipment, land, and the like
Repairs and maintenance
Seeds and plants
Storage and warehousing
Supplies
Taxes
Utilities
Veterinary fees

Payments Made to Third Parties

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 Form 1099 is if you hired an independent contractor to perform more than $600 worth of work, such as transporting your produce to a weekly farmers market, for your farm business.

Specific Schedule F Considerations

There's a number of specific situations to keep in mind when filing Schedule F. Family farms often involve multiple family members contributing labor and resources. In this type of setup, the farm's income must be accurately distributed amount family members based on their contributions. Be prepared to substantiate this calculation if/when asked by the IRS. If the farm operates as a partnership, Schedule F reporting should align with the terms of the partnership agreement.

When a farming operation is held in an estate or trust, the individual responsible for managing the estate or trust must still report farming income and expenses on Schedule F. Estate and trust tax rules including specific filing requirements and deductions should still be considered, though.

Just like any other type of business, it's important to keep track of personal spend compared to business spend. Sole proprietors should carefully distinguish between personal and business expenses, as Schedule F reporting should focus on the farming income and legitimate business expenses. The IRS may ask for substantiation on costs being deducted from income or reported as a deduction to gross revenue.

Last, different farming structures may qualify for specific tax credits and incentives. For example, family farms may benefit from the Family and Medical Leave Act (FMLA) credit. Corporate farms might explore incentives related to energy-efficient practices or research and development. A farm should understand it's current operations and future plans, then consult with a tax professional to best understand how to leverage incentives and capitalize on tax benefits.

Additional Resources When Filing Schedule F

For more information, IRS Publication 225, the Farmer’s Tax Guide, is a document that helps those involved inagribusinessnavigate the farming-specific tax code. The document details and outlines how the federal government taxes farms. 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 Internal Revenue Service (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 withtax withholdings. Also, the U.S. Department of Labor sometimes requires employers to register with the department and does not allow employers to label farm employees as independent contractors.

Should I File a Schedule C or Schedule F?

If you are a sole proprietor whose main source of income is from farming, you should file a Schedule F. Other sole proprietors typically file a Schedule C.

Do I File a Schedule F If I Am Self-Employed?

If you are a self-employed farmer set up as a sole proprietor, you are required to file a Schedule F. If you are self-employed in another industry, you will likely need to file a Schedule C.

Which Farming Profits Do I Report on a Schedule F?

Farm income profits can include money generated by farm or agribusiness operations. Some examples are profits from the sale of crops, livestock, and farm-related goods and services.

The Bottom Line

If you are a farmer and your farming business is set up as a sole proprietorship, you’re required to file a Schedule F to report net profits or losses each tax year. Farming profits or losses are transferred to Form 1040 to calculate your total tax liability for the year. Essentially, Schedule F is to farmers what Schedule C is to sole proprietors in other industries.

I'm an enthusiast with extensive knowledge in taxation, particularly in the context of farming and agricultural activities. To establish my expertise in this area, let me provide some evidence:

I can explain the purpose and content of Schedule F in detail, including its role in reporting taxable income from farming.
I understand the eligibility criteria for Schedule F and can explain the IRS's expectations regarding genuine profit motives for farming activities.
I can differentiate between the cash method and accrual method of accounting and explain how they affect income reporting for farmers.
I can define various income sources related to farming, such as gross cash income, gross farm income, net cash income, and net farm income.
I can provide information on deductible expenses that farmers can claim on Schedule F to reduce their tax liability.
I can explain the significance of Form 1099 in relation to Schedule F and when it is required for payments made to third parties.
I can address specific considerations for family farms, partnerships, and estates or trusts when filing Schedule F.
I can discuss how different farming structures may qualify for specific tax credits and incentives.
I can recommend additional resources, such as IRS Publication 225 and IRS Publication 51, for those seeking more information on farm taxation.

Now, let's delve into the concepts used in the provided article "What Is Schedule F: Profit or Loss from Farming":

Schedule F: This is a tax form used by farmers who operate as sole proprietors to report their net profit or loss from farming activities. It is similar in function to Schedule C for other sole proprietors.
Taxable Income: The primary purpose of Schedule F is to report taxable income earned from farming or agricultural activities.
Deductible Expenses: Farmers can deduct various expenses related to their farming business, including seed, fertilizer, equipment maintenance, and property taxes, which are reported on Schedule F to determine taxable income.
Income Sources: Schedule F gathers information about various sources of farm income, including the sale of crops, livestock, and government payments.
Cash Method vs. Accrual Method: Farmers can choose between the cash method and the accrual method of accounting to report their income and expenses. The choice affects when income and expenses are recognized for tax purposes.
Schedule F Eligibility: Eligibility for Schedule F is based on engagement in farming or ranching activities, with an expectation of genuine profit motive. It is not limited to specific types of farming activities or income thresholds.
Form 1099: Schedule F inquires about payments made to third parties that may require the filing of Form 1099, such as payments to independent contractors.
Specific Considerations: Family farms, partnerships, and trusts have unique considerations when filing Schedule F, including income distribution among family members and alignment with partnership agreements.
Tax Credits and Incentives: Different farming structures may qualify for specific tax credits and incentives, which can vary based on the nature of the farming operation.
Additional Resources: The article recommends IRS Publication 225 and IRS Publication 51 as valuable resources for understanding the tax code related to farming and agricultural employment.
Schedule C vs. Schedule F: Sole proprietors in farming should file Schedule F if farming is their primary source of income, while those in other industries typically file Schedule C.

In summary, Schedule F is a crucial tax form for farmers, and understanding its purpose, eligibility criteria, income sources, accounting methods, and deductions is essential for complying with tax regulations and optimizing tax liability in the farming sector.