Schedule F: Profit or Loss From Farming—Definition, Uses, and Filing

What Is Schedule F: Profit or Loss From Farming?

Schedule F: Profit or Loss From Farming is used by farmers who operate a sole proprietorship farming business to report income and expenses for the tax year. The form can also be used by corporations, partnerships, estates, and trusts engaged in farming activities.

Schedule F is the equivalent of Schedule C for non-farming sole proprietors. Farmers typically involved in livestock, dairy, poultry, fish farming, crop production, or other agricultural activities are required to use this form to report their earnings and deductions related to farming operations.

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.

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.

Key Takeaways

• Schedule F is used to report taxable income from farming or agricultural activities.
• This form must be included in a Form 1040 tax return, regardless of the type of farm income.
• Tax-deductible expenses such as equipment, property taxes, seed, and feed are reported on Schedule F to help calculate the taxable income.
• It also allows farmers to claim various farm-related credits and deductions.

Who Can File Schedule F?

To qualify for filing Schedule F, the individual or entity must be involved in farming or ranching activities.

Eligible farming activities include:

• Crop production
• Livestock raising
• Poultry farming
• Aquaculture (fish farming)
• Orchards, plantations, and ranching

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.

There is no specific gross income requirement to use Schedule F, and small or large farming operations can file depending on their situation.

How to File Schedule F?

You will file Schedule F with Form 1040, 1040-SR, 1040-SS, 1040-NR, 1041, or 1065.

To fill out the form, you’ll need information on the sales of your livestock or crops, equipment expenses and depreciation, insurance expenses, taxes, conservation expenses, labor and employment costs, the rent or lease for vehicles and land, and other farm operating expenses.

You can file the form by mid-January if your business follows a normal calendar year. You can also file it by March 1 if you are filing with a 1040 and can pay the taxes at that time. You will need to file the form by the 15th of the month following the end of your business’s fiscal year if the business does not follow a normal calendar year.

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.

Download Link: Schedule F

You can download the form on the IRS website or complete it with tax software when filing your taxes.

Income Sources on Schedule F

Schedule F accounts for different sources of farm income:

• Gross cash income: Total receipts from selling crops, livestock, and any government farm payments (e.g., subsidies, crop insurance).
• Gross farm income: Includes cash income plus non-cash income, like the value of food grown and consumed on the farm.
• Net cash income: Gross cash income minus cash expenses (such as wages, feed, and fertilizer).
• Net farm income: The farm’s total income after deducting both cash and non-cash expenses (e.g., depreciation and capital consumption)..

Important

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

Deductible Expenses

Farmers can also fill out Schedule F to claim tax deductions for the business, which lowers the overall tax bill. Related deductions include—but are not limited to:

• 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. 

Special Considerations When Filing Schedule F: Profit or Loss From Farming

There are many specific situations to keep in mind when filing Schedule F.

Family farms: If family members contribute labor or resources, income should be appropriately allocated among them. The IRS may request substantiation for this allocation.

Partnerships and Trusts: When the farm is run as a partnership, income and expenses should align with the partnership agreement. Estates and trusts involved in farming must file Schedule F under the applicable estate tax rules.

Separating personal and business expenses: Sole proprietors should carefully distinguish between personal and business expenses, as Schedule F reporting should focus on 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.

Tax credits: Farmers may qualify for credits and incentives, such as the Family and Medical Leave Act (FMLA) credit for family farms, or energy-efficient farming credits for corporate farms. A farm should understand its current operations and future plans, then consult with a tax professional to best understand how to leverage incentives and capitalize on tax benefits.

Other Relevant Documents

For more information, IRS Publication 225, the Farmer’s Tax Guide, is a document that helps those involved in agribusiness navigate 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 agribusiness must comply with tax 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

Farmers who run their operations as a sole proprietorship must file Schedule F to report their net farming profits or losses each year. This form helps calculate the taxable income from farming activities, which is then transferred to Form 1040 for total tax liability. For farmers, Schedule F serves the same purpose as Schedule C does for sole proprietors in other industries.

Farmers should work with tax professionals to ensure they take advantage of available deductions, credits, and tax incentives, as well as to help with accurate reporting.