What Is Form 1040-F, Profit or Loss From Farming?

Schedule F (Form 1040), Profit or Loss From Farming, is a tax document used by farmers who operate as sole proprietors and is attached to the standard Form 1040 individual tax return. The function of Schedule F is to provide a standardized method for calculating a farm’s net profit or loss for a given tax year. This calculation involves reporting all farm-related income and subtracting all allowable farm-related expenses. The resulting figure determines the taxable income from the farming operation.

Who Must File Schedule F

Filing Schedule F is a requirement for individuals who manage a farm for profit as a sole proprietorship. The IRS has a broad definition of a “farm,” which includes operations such as stock, dairy, poultry, fish, fruit, and truck farms. It also encompasses plantations, ranches, ranges, nurseries, and orchards. The activity must be engaged in for profit, not as a hobby. If the farming activity is not for-profit, losses are only deductible to the extent of income from that hobby and are reported elsewhere.

While sole proprietors use Schedule F, farms structured as corporations must file Form 1120, U.S. Corporation Income Tax Return. Similarly, farm partnerships file Form 1065, U.S. Return of Partnership Income. Spouses who jointly own and operate a farm may have the option to file as a qualified joint venture. This allows each spouse to file a separate Schedule F, rather than filing a more complex partnership return.

Landowners who rent out their land must also consider the nature of their involvement. A landowner who does not materially participate in the farming activity and receives cash rent would report that income on Schedule E, Supplemental Income and Loss. If the landowner receives rental income based on crop shares and materially participates in the operation, they would use Form 4835, Farm Rental Income and Expenses, not Schedule F.

Information and Documents Needed to Complete Schedule F

Before filling out Schedule F, a farmer must gather documentation related to both income and expenses. Organized record-keeping throughout the year is a practical necessity for accurately calculating the farm’s profit or loss.

For farm income, you will need records of all sales of livestock, produce, grains, and any other products raised on the farm. This includes documentation for sales of livestock or other items that were purchased for resale. Other required records include:

• Agricultural program payments from government agencies, reported on Form 1099-G
• Crop insurance proceeds
• Cooperative distributions reported on Form 1099-PATR
• Income from custom hire work, like performing machine work for a neighbor

On the expense side, a comprehensive collection of receipts and invoices is necessary for all ordinary and necessary costs of running the farm. Common deductible expenses include feed, seeds, plants, fertilizers, chemicals, fuel, and oil. You will also need records for freight, insurance on farm property, and interest paid on farm-related loans. Other expense documents relate to hired labor, rent or lease payments, repairs, supplies, and veterinary fees. For significant purchases like machinery and buildings, records of the cost and date placed in service are needed to calculate depreciation on Form 4562, Depreciation and Amortization.

You must also determine your accounting method. Most farmers use the cash method, where income is reported when it is received and expenses are deducted when they are paid. Some may use the accrual method, where income is reported when earned and expenses are deducted when incurred. This choice affects which parts of Schedule F you will complete, as cash method filers use Parts I and II, while accrual method filers use Parts II and III.

Completing Schedule F Part by Part

Your chosen accounting method dictates which parts of the form you must complete. For those using the cash method, Part I is where you report farm income. Line 1a is for the total sales of livestock and other items you bought for resale, while line 1b is for the cost of those items. Line 2 is for sales of livestock, produce, grains, and other products you raised, and all income is summed to calculate your gross income on line 9.

Part II of the form is for farm expenses and is completed by filers using either the cash or accrual method. This section contains a detailed list of common farm expense categories where you enter your totals for items like chemicals, feed, and fertilizers. After listing all applicable expenses, you will total them on line 33.

The final calculation of your net farm profit or loss occurs on line 34, where you subtract total expenses from your gross income. Filers using the accrual method will skip Part I and instead complete Part III to determine their gross income before moving to Part II for expenses.

Reporting Schedule F Results

Once Schedule F is complete, the net farm profit or loss calculated on line 34 must be reported on other parts of your tax return. The figure is transferred to Schedule 1 of Form 1040, which is used to report “Additional Income and Adjustments to Income.” The profit or loss from Schedule F is transferred directly to line 6 of Schedule 1.

A net profit from your farming operation has further implications for self-employment taxes. This profit is considered self-employment income and must be reported on Schedule SE, Self-Employment Tax. The net farm profit from Schedule F is carried over to Schedule SE, which is used to calculate the Social Security and Medicare taxes that self-employed individuals must pay.

The self-employment tax calculated on Schedule SE is a separate tax from your income tax. If you have a net profit of $400 or more from farming, you are required to file Schedule SE and pay this tax. The result from the Schedule SE calculation is then entered back onto your Form 1040, ensuring that self-employed farmers contribute to these federal programs.