Last Updated : January 14, 2009
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Schedule F

Schedule F

Profit or Loss from Farming

Use Schedule F (Form 1040) to report income and expenses from regular farming operations on a farm the taxpayer operates as a sole proprietor. This schedule is filed with Form 1040, 1040NR, 1041, 1065, or 1065-B. Also, you may need to file other schedules and forms along with this schedule. An activity qualifies as a regular activity if taxpayer’s primary purpose for engaging in the activity is for income or profit and taxpayer are involved in the activity with continuity.

If you received cash of more than $10000 in one or more related transactions in your farming business, you may have to file Form 8300. For details, see Publication 1544.

Complete Part-I and Part-II for operating the farm activity based on the Cash Method. Part-II and Part-III should be completed for those taxpayers using the Accrual method.

Line A – Principal Product
Enter here the principal product of the farm for which regular farming activity is undertaken.

Line B –Activity Code
Enter the Activity code out of the 14 principal agricultural activity codes from Schedule F instructions issued by IRS that best describes the source of most of your income.

Line C –Accounting Method
Check the box for selection of appropriate method of reporting your income and expenses.

If Cash checkbox is checked then complete Part-I and Part-II by reporting income in the year in which you actually or constructively received it and deduct expenses  in the year you paid them.Forfurther details please refer publication 225.

If Accrual checkbox is checked then complete Part-II and Part-III and Part-I line 11by reporting income in the year in which you earned it and deduct expenses in the year you incurred them, even if you did not pay them in that year. For further details please refer publication 538.

Note: Farming Syndicates cannot use the cash Method of accounting. for more details refer the instructions.

Line D - EIN
An EIN is considered necessary only if taxpayer has a qualified retirement plan or was required to file an employment, excise, estate, trust, or alcohol, tobacco, and firearms tax return.

Line E – Participation in Operation of Business
If business activity of taxpayer is not a rental activity and he/she met any of the material participation tests or the exception for oil and gas applies, check the “Yes” box. Otherwise check the “No” box. If “No” box is checked, this business is passive activity.

If “No” box is checked and taxpayer have a loss from this business, taxpayer have to use Form 8582 to figure allowable loss, if any, to enter on Schedule F, line 36. Normally, taxpayer can deduct losses from passive activities only to the extent of income from passive activities only to the extent of income from passive activities.

For treating the participation of retired or Disabled farmer, and surviving spouse as material participation special rules apply. Refer the instructions for further guidance.

Part I – Farm Income – Cash Method:

Complete this Part only if you checked the box for cash Method to be followed for Accounting on Line C.

Line 1 – Sale of livestock and other items bought for sale
Enter the amount received for the sales of livestock and other items bought for resale. If you sold livestock because of drought , flood  or other weather related conditions then refer the instructions of schedule F to report the income in case if it left to be reported in year of sale.

Line 2 – Cost or other basis of livestock and other items
Enter the cost or other basis of livestock and other items reported on line 1.

Line 4 – Sale of livestock, produce, grains, other products
Enter the amount received for the sale of livestock, produce, grains and other products you raised.
If the taxpayer ran the farm and received rents based on crop shares or farm production, report these rents as income on line 4.

Line 5a- Coo-operative Distributions
Enter the amount of total distributions received from co-operatives for which FORM 1099-PATR is received. Include here patronage dividends, non patronage distributions, per-unit retains allocations, and redemption of non qualified notices and per-unit retain allocations. If taxpayer received property as patronage dividends, report the fair market value of the property as income. Include any cash advances from the marketing co-operative. For more details refer schedule F instructions.

Line 5b – Taxable amount
Enter the taxable amount of the dividends reported on line 5a. Do not include as income patronage dividends from buying personal family items, capital assets, or depreciable assets.

Line 6a – Agriculture program Payments
Enter the amount of any agricultural program payments. These include: direct payments, counter–cyclical payments, price support payments, market gain from repayment of a secured CCC loan, diversion payments, cost-share payments and payments in the form of materials or services. These being government payments are generally reported on FORM 1099-G.

Line 6b – Taxable amount
On line 6b, report only the taxable amount of any agricultural program payments. For more information refer schedule F instructions.

Line 7a – Commodity Credit Corporation Loans
Generally, Commodity Credit Corporation (CCC) loan proceeds are not reported as income. If the taxpayer pledges part or all of their production to secure a CCC loan, they can elect to report the loan proceeds as income in the year they are received. If this election is made in a prior Year, report loan proceeds the taxpayer received in 2006 on this line. Attach a statement to your return showing details of the loans.

Line 7b – CCC Loans forfeited
Enter on this line the full amount forfeited, even if the loan proceeds were reported as income. This amount may be reported to the taxpayer on Form 1099-A.

Line 7c – Taxable amount
If the taxpayer did not elect to report the loan proceeds as income you must still include the forfeited amount on line 7c.If the taxpayer did elect to report the proceeds of the loan as income you generally will not have an amount on Line 7c.However, if the amount forfeited is different from the basis in the commodity, there may be an entry on line 7c.

Line 8a – Crop insurance Proceeds and Federal Crop Disaster payments
Generally crop insurance proceeds must be reported in the year in which they are recieved.Federal crop disaster payments are considered crop insurance proceeds. If the damage occurred in 2006, the taxpayer can elect to include certain proceeds in income for 2007.
If form 1099-M is received and form 1099-M line 10 (crop insurance proceeds) > 0 then set form 1099M here on line 8a.

Line 8b – Taxable amount
Enter on line 8b the taxable amount of the proceeds the taxpayer received in 2006. Do not include proceeds the taxpayer is electing to include in income for 2007.
 
Line 8c – Election to defer to 2007
If the taxpayer wants to defer crop insurance proceeds to income for 2007, check the checkbox and complete election explanation statement.

Line 8d – Amount deferred from last Year
Enter the amount, if any, of crop insurance proceeds the taxpayer received in 2005 and elected to include in income for 2006.

Line 9 – Custom Hire Income
Enter the amount, if any, of income received from custom Hire work such as machine work.

Line 10 – Other income
This line is used to report income not shown on lines 1 through 9 , such as Illegal federal irrigation subsidies, bartering income , income from cancelation  of debt, state gasoline or fuel tax refund received etc. for more information refer instructions for schedule F.

Line 11 – Gross income
If you checked the checkbox for cash method on line C, then on this line total of lines of Part-I line 3 to line 10 is done.
If you checked the checkbox for accrual method on line C, then on this line value of Part-III line 51 is entered by the package.

Part II – Expenses:

Line 12 – Car and truck expenses
The taxpayer has a option either to deduct the actual expenses of running the vehicle or take the standard mileage rate .But the conditions to be satisfied for taking standard mileage rate for 2006 are:

  • Owned the vehicle and use the standard mileage rate for the first year the vehicle was placed in service , or
  • Leased the vehicle and is using the standard mileage rate for the entire lease period.

If the taxpayer deducts actual expenses:

  • Include on line 12 the business portion of expenses for gasoline, oil, repairs, insurance etc.
  • Show depreciation on line 16 and rent or lease payments on line 26a.

If the taxpayer claims any car or truck expenses, then the taxpayer must provide the information requested on form 4562, Part-V.

Line 13 – Chemicals
Enter the amount spent on chemicals for farm use.

Line 14 – Conservation expenses
Enter the amount of conservation expenses which include deductible soil and water conservation expenses. For meaning of deductible soil and water conservation expenses refer instructions of schedule F. these expenses include , but are not limited to : cost of leveling , grading and terracing , contour furrowing, construction, control and protection of diversion channels , drainage ditches, earthen dams, water courses , outlets and ponds, the eradication of brush , and plantation of windbreaks. Moreover in order to deduct these expenses they need to consistent with the conservation plan of their respective area. For more information on allowable expenses refer instructions of schedule F and publication 255.

Line 15 – Custom Hire
Enter the amounts paid for custom hire or machine work. Do not include amounts paid for rental or lease of equipment that taxpayer operated by their own. Amounts for rental equipment are reported on line 26a.

Line 16 – Depreciation and Section 179 Deduction
Enter on this line depreciation of buildings, improvements, cars and trucks, machinery  and other farm equipments of a permanent nature. The taxpayer cannot deduct depreciation on the home, furniture or other personal items, land , livestock bought or raised for resale, or other property in inventory.
For more information of increased depreciation and section 179 deductions refer publication 255 and publication 946 and instructions of Form 4562.

Line 17 – Employee benefit programs
Enter on this line contributions made to employee benefit programs that are not an incidental part of a pension or profit-sharing plan included on Line 25.
For more information refer schedule F instructions.

Line 18 – Feed Purchased
If the taxpayer uses the cash method of accounting, enter on this line amount paid for the cost of feed for livestock to consume later in the year cannot be deducted unless all the following apply:

  • The payment was for the purchase of feed rather than a deposit.
  • The prepayment had a business purpose and was not made merely to avoid tax.
  • Deducting the prepayment will not materially distort the taxpayer’s income.

If all these apply, then the taxpayer can deduct the prepaid feed otherwise not.

Line 19 – Fertilizers and lime
Enter the amount paid for fertilizer and lime for use on the farm.

Line 20 –Freight and trucking
Enter the amount paid for freight and trucking .Do not include on this line the cost of transportation incurred in purchasing the livestock held for resale as freight paid. These costs are to be added to the cost of the livestock and deducted when the livestock is sold.

Line 21- Gasoline, fuel and oil
Enter the amount paid for Gasoline, fuel and oil for farm Equipment.

Line 22 – Insurance
Enter on this line premiums paid for farm business insurance. Personal insurances for lost earnings due to sickness or disability are not deductible.

Line 23a - Mortgage Interest
If the taxpayer has a mortgage on real property used in the farming business , other than the main home , enter the amount of interest paid to banks or other financial institutions for which Form 1098 was received .

Line 23b – Other Interest
If the interest was paid but for which Form 1098 was not received then enter such person’s name and amount paid on this line.

Line 24 – Labor hired
Enter the amount paid by taxpayer for farm labor. Do not include amounts paid for personal use. Include only amounts paid to household help to care for farm laborers. Do not include the amounts for employment credits.

Line 25 – Pensions and Profit sharing Plans
Enter the amount of contributions made to employee pension, profit sharing, or annuity plans. For more details refer publication 560.

Line 26a – Rent or lease for vehicles, machinery and equipments
If the taxpayer rented or leased vehicles, machinery, or equipment enter the amount portion of the rental cost. If the vehicle is leased for a term of 30 days or more, the deduction may be reduced by the inclusion amount. For more details refer publication 463.

Line 26b – Rent or lease -Others
Enter here amounts paid by taxpayer to rent or lease other property such as pasture or farmland.

Line 27 – Repairs and Maintenance
Deduct the cost of repairs and maintenance of farm buildings, machinery and equipment.   You can also deduct amount paid for tools of short life or minimal costs such as shovels and rakes. Do not deduct the repairs or maintenance on your home.

Line 28 – Seeds and plants
Enter the amount paid for seeds and plants for farm business.

Line 29 – Storage and warehousing
Enter the amount paid by taxpayer for storage and warehousing of farm produce.

Line 30 – Supplies
Enter the amount paid for farm supplies.

Line 31 – Taxes
Following taxes and licenses can be entered on this line;

  • Real estate and personal property taxes on farm business assets.
  • Licenses and regulatory fees for your trade or business paid each year to state or local governments. But some licenses, such as liquor licenses, may have to be amortized.
  • Social security and Medicare taxes paid.
  • Federal highway use tax.

Do not enter following items on this line.

  • Federal income taxes, including self-employment tax
  • Estate and gift taxes.
  • Taxes assessed to pay for improvements, such as paving and sewers.
  • Taxes on home or personal use property.
  • State and local sales taxes on property purchased for use in business. Instead, treat these taxes as part of the cost of the property.
  • State and local sales taxes imposed on the buyer that taxpayer is required to collect and pay over to state or local governments
  • Other taxes and license fees not related to taxpayer’s business.

Line 32 – Utilities
Enter on this line the amounts paid for gas, electricity, water and other utilities for business use on the farm. Do not include personal utilities. For Base Rate calculation Refer instructions of schedule F.

Line 33 – Veterinary, breeding and medicine
Enter the amount paid for medicines, veterinary charges to doctors , breeding while rearing the livestock.

Line 34 – Other Expenses
Enter all the ordinary and necessary farm expenses not deducted elsewhere on schedule F such as advertising, office supplies etc. do not include fines and penalties paid to government for violating the law.

  • At –risk loss deduction: Any loss from this activity that was not allowed as a deduction last year because of at risk rules is treated as a deduction allocable to this activity in 2006.
  • Business start-up costs: If the taxpayer’s business began in 2006, he or she cha elect to deduct up to $5000 for certain business start-up costs. This limit is reduced by the amount by which the taxpayer’s start-up costs exceed $50000.
     
  • Forestation & reforestation costs: Reforestation costs are generally capital expenditure and so for each Qualified timber property  you can elect to expense up to $10000 (or $5000 if filing status is married filing separately) of qualifying reforestation costs paid or incurred in 2006
  • Expenses for Business use of Home: Taxpayer can claim the expenses for business use of home, subject to some limitations. To claim this deduction, complete the Form 8829. Form more details, see the instructions for Form 8829.
  • Go –Zone clean –up costs: The taxpayer can deduct up to 50% of any Qualified GOZONE clean –up costs paid or incurred in 2006. For more details refer instructions of scheduleF.
  • Legal and professional Fees: Deduction of fees for tax advice related to farming business and for preparation of tax forms can be taken.
  • Travel, meals and Entertainment: The taxpayer can deduct for farm business travel and 50% of your business meals and entertainment. For more details refer instructions for schedule F.
  • Pre-productive period expenses: If a person had pre productive period expenses in 2006 and decided to capitalize them, he or she must enter the total of these expenses on this line.

Line 35 – Total Expenses
The package calculates the total of all expenses entered on line 12 to line 34 and enter the result here.

Line 36 – Net Farm Profit or (loss)
If you have a loss on this line, the amount of loss the taxpayer can deduct this year may be limited. Individuals, Estates and trusts must complete line 37 before entering the loss on line 36.

If the taxpayer checked the checkbox NO on line E then the taxpayer needs to see that his loss might be limited by the calculations on Form 8582. The checkbox For PAL indication needs to be checked if the loss refers to some passive activity.

The package enters the net profit or deductible loss on Form 1040 line 18 And schedule SE line 1. For Form 1040NR filers this amount is reported on line 19 of Form 1040NR.

Line 37 - At-risk Rules
Normally, if taxpayer has a business loss and amounts invested in the business for which taxpayer are not at risk, he/she must complete Form 6198 to figure allowable loss.

Check the box 32b if taxpayer has amounts invested in the business for which he/she is not at risk.

 

Part III – Farm Income – Accrual Method:

If the taxpayer checks the checkbox for Accrual method on schedule F pg-1 line C then use part-III to report farm income when you earn it, not when you receive it. Generally, the taxpayer must include animals and crops in their inventory if accrual method is selected. 

Line 38 – Sale of livestock, produce, grains and other products
Enter the amount received for the sales of livestock, produce, grains and other products.

Line 39a- Co-operative Distributions
Enter the amount of total distributions received from co-operatives for which FORM 1099-PATR is received. Include here patronage dividends, non patronage distributions, per-unit retains allocations, and redemption of non qualified notices and per-unit retain allocations. If taxpayer received property as patronage dividends, report the fair market value of the property as income. Include any cash advances from the marketing co-operative. For more details refer schedule F instructions.

Line 39b – Taxable amount
Enter the taxable amount of the dividends reported on line 39a. Do not include as income patronage dividends from buying personal family items, capital assets, or depreciable assets.

Line 40a – Agriculture program Payments
Enter the amount of any agricultural program payments. These include: direct payments, counter–cyclical payments, price support payments, market gain from repayment of a secured CCC loan, diversion payments, cost-share payments and payments in the form of materials or services. These being government payments are generally reported on FORM 1099-G.

Line 40b – Taxable amount
On line 6b, report only the taxable amount of any agricultural program payments. For more information refer schedule F instructions.

Line 41a – Commodity Credit Corporation Loans
Generally, Commodity Credit Corporation (CCC) loan proceeds are not reported as income. If the taxpayer pledges part or all of their production to secure a CCC loan, they can elect to report the loan proceeds as income in the year they are received. If this election is made in a prior Year, report loan proceeds the taxpayer received in 2006 on this line. Attach a statement to your return showing details of the loans.

Line 41b – CCC Loans forfeited
Enter on this line the full amount forfeited, even if the loan proceeds were reported as income. This amount may be reported to the taxpayer on Form 1099-A.

Line 41c – Taxable amount
If the taxpayer did not elect to report the loan proceeds as income you must still include the forfeited amount on line 41c.If the taxpayer did elect to report the proceeds of the loan as income you generally will not have an amount on Line 41c.However, if the amount forfeited is different from the basis in the commodity, there may be an entry on line 41c.

Line 42 – Crop insurance Proceeds and Federal Crop Disaster payments
Generally crop insurance proceeds must be reported in the year in which they are received.
 
Line 43 – Custom Hire income
Enter the amount, if any, of income received from custom Hire work such as machine work.

Line 44 – Other income
This line is used to report income not shown on lines 38 through 43 , such as Illegal federal irrigation subsidies, bartering income , income from cancelation  of debt, state gasoline or fuel tax refund received etc. for more information refer instructions for schedule F.

Line 46 – Inventory at the Beginning of the Year
If you are changing your method of accounting beginning with 2006, refigure last year's closing inventory using your new method of accounting and enter the result on line 35. If there is a difference between last year's closing inventory and the refigured amount, attach an explanation.

Line 47 – Costs of livestock, produce, grains and other products purchased
Enter the cost of livestock, produce, grains and other products purchased during the year.

Line 49 – Inventory at the end of the Year
Enter the inventory amount for livestock, produce, grains and other products at the end of the year.

Line 50 – Costs of livestock, produce, grains and other products sold
This line is automatically calculated in our package. Here line 49 is subtracted from line 48 and the result is entered on this line.
If the taxpayer uses the Unit-livestock –price method of valuing inventory and the amount on line 49 is larger than the amount on line 48, subtract line 48 from line 49. Enter the result on this line. Add lines 45 and line 50. Enter the result on Line 51.

Line 51 – Gross income
This line is automatically calculated in our package. Here line 50 is subtracted from line 45 and the result is entered on this line and on schedule F pg-1 line 11.

 

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