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Filing Schedule F with Federal Tax Form 1040 to Report Income or Losses from Farming

written by: John Garger•edited by: Laurie Patsalides•updated: 10/17/2010

Schedule F of the Federal Income Tax form 1040 is used to report income and losses from farming activities. Learn about how Schedule F is similar to Schedule C which is used to report income and losses from business activities.

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    Federal Income Tax form 1040 has a multitude of sub-forms called schedules to allow tax payers to figure and report taxable income to the Internal Revenue Service. Schedule F is used to report income and losses from farming activities and is similar to Schedule C, the form used to report profits and losses from operating a business.

    Like other businesses, farmers may elect to use either the cash or accrual method of accounting. The cash method allows farmers to claim income only after a cash flow has occurred. In other words, income is recorded when the farmer is paid in cash or its equivalent. The accrual method allows income to be claimed when it is reasonably expected that the cash flow will occur. For example, if a farmer delivers grain to a buyer, the farmer records the money owed as a receivable and under the accrual method of accounting, the receivable can be counted as income.

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    Who Must File Schedule F

    Anyone actively engaged in farming activities must file Schedule F along with the standard Federal Income Tax form 1040. The form itself is similar to Schedule C except it contains special items pertinent only to farmers as business owners. The form starts with a declaration of accounting method, cash or accrual, for the tax year. Following this declaration, farmers must then fill in certain sections of the form depending on the accounting method used.

    Like Schedule C, farmers itemize their farming activities under two main headings: those items that contributed to income and those that contributed to expenses in direct operation of the farm. Income items include sale of livestock, produce, grains, and other goods produced and sold in the tax year. Expenses include vehicles, chemicals, conservation expenses, feed, fertilizer, freight, and depreciation of long-term assets.

    As a last requirement, farmers must indicate, using a six-digit code, the number which best describes their farming activities. The farming activities are broken down into three main categories and include crop production, animal production, and forestry and logging. These main categories are further broken down into sub-categories such as vegetable farming, fruit and tree nut farming, beef cattle ranching, aquaculture, and poultry and egg production. These farming classifications are gathered to facilitate the administration of the Internal Revenue Code.

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    Just like other businesses, farmers must report income and losses due to operation of their business. However, farmers are required to file Schedule F in lieu of Schedule C as most businesses do. Schedule F is a form made especially available for farmers in the United States. No other filer uses this form for any other purpose. Compared to other tax forms, Schedule F is short and straight forward.

    Always consult with a tax professional for questions about your tax liability.