Farm Income (or Loss)

While Form 1040’s Line 12 is used for general “business income,” Line 18 is used for listing income earned (or losses suffered) from unincorporated farming businesses. Farm-operating taxpayers are required to disclose their farming information on a Schedule F. This form first asks for basic information such as the farm’s principal crop/activity1, whether the taxpayer materially participated in business operations for that tax year, and which accounting method (Cash or Accrual) the business uses2. The bulk of Schedule F, however, requires taxpayers to list detailed income sources and expense items.

To complete the income section, taxpayers will need to report all revenue earned from sales of livestock, animals, grains, crops, and any other farming assets (whether raised/grown on the property or acquired elsewhere). Additionally, the form asks for information regarding loan proceeds, financial distributions, and agricultural program payments.

To complete the expenses section, taxpayers must report dollar amounts expended on labor, vehicles, chemicals, feed, fertilizers, freight shipping, fuel, insurance, various interest payments, repairs, utilities, supplies, and more. Furthermore, any property depreciation or Section 179 expense deduction3 must be reported. All listed expenses must be ¬farm-related and not personal or living expenses.

For more detailed instruction on how to complete Schedule F, please consult the Schedule F Instructions. Once Schedule F is completed the taxpayer must transfer the calculated profit (or loss) to Line 18 of Form 1040.

1This includes designating an “activity code” most aligned with the farm’s purpose and use
2Taxpayers should be aware that Parts 1 and 2 are required to be completed for Cash method businesses while Accrual method businesses must complete Parts 2 and 3
3This tax deduction involves treating the cost of certain property as a deductible expense, rather than a capitalization and depreciation, for income taxes purposes

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