Schedule F: profit or loss from farming

• Author: Nicholas L. Bourdeau
• Pages: 107-138

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9-1

Chapter 9

Schedule F

Profit or Loss From Farming

TABLE OF CONTENTS

§9:00 THEORY

§9:10 LINE BY LINE

§9:10.1 Name of Proprietor

§9:10.2 Line A Principal Product; Describe in One or Two Words Your Principal Crop or Activity for the

Current Tax Year

§9:10.3 Line B Enter Code From Part IV

§9:10.4 Line C Accounting Method: (1) Cash [or] (2) Accrual

§9:10.5 Line D Employer ID Number (EIN), if Any

§9:10.6 Line E Did You “Materially Participate” in the Operation of This Business During This Fiscal

Year? If “No,” See Page F-2 for Limit on Passive Losses

§9:10.7 Line 1 Sales of Livestock and Other Items You Bought for Resale

§9:10.8 Line 2 Cost or Other Basis of Livestock and Other Items Reported on Line 1

§9:10.9 Line 3 Subtract Line 2 From Line 1

§9:10.10 Line 4 Sales of Livestock, Produce, Grains, and Other Products You Raised

§9:10.11 Line 5a Total Cooperative Distributions (Form(s) 1099-PATR); Line 5b Taxable Amount

§9:10.12 Line 6a Agricultural Program Payments (see page F-2); Line 6b Taxable Amount

§9:10.13 Line 7 Commodity Credit Corporation (CCC) Loans (see page F-3); Line 7a CCC Loans Reported

Under Election; Line 7b CCC Loans Forfeited; Line 7c CCC Taxable Amount

§9:10.14 Line 8 Crop Insurance Proceeds and Certain Disaster Payments (see page F-3); Line 8a

Amount Received in [Previous Year]; Line 8b Taxable Amount; Line 8c If Election to Defer to

[Current Year] Is Attached, Check Here; Line 8d Amount Deferred From [Two Years Prior]

§9:10.15 Line 9 Custom Hire (Machine Work) Income

§9:10.16 Line 10 Other Income, Including Federal and State Gasoline or Fuel Tax Credit or Refund (see

page F-3)

§9:10.17 Line 11 Gross Income; Add Amounts in the Right Column for Lines 3 Through 10; If Accrual

Method Taxpayer, the Amount From Page 2, Line 51

§9:10.18 Line 12 Car and Truck Expenses (see page F-4—also attach Form 4562)

§9:10.19 Line 13 Chemicals

§9:10.20 Line 14 Conservation Expenses (see page F-4)

§9:10.21 List 15 Custom Hire (Machine Work)

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The Determination of Income for Child Support 9-2

§9:10.22 Line 16 Depreciation and Section 179 Expense Deduction Not Claimed Elsewhere (see page F-4)

§9:10.23 Line 17 Employee Benefit Programs Other Than on Line 25

§9:10.24 Line 18 Feed Purchased

§9:10.25 Line 19 Fertilizers and Lime

§9:10.26 Line 20 Freight and Trucking

§9:10.27 Line 21 Gasoline, Fuel, and Oil

§9:10.28 Line 22 Insurance (other than health)

§9:10.29 Line 23a Interest; Mortgage (paid to banks, etc.); Line 23b Interest: Other

§9:10.30 Line 24 Labor Hired (less employment credits)

§9:10.31 Battle Lines

§9:10.32 Line 25 Pension and Profit-Sharing Plans

§9:10.33 Line 26 Rent or Lease (see page F-5); Line 26a Vehicles, Machinery, and Equipment; Line 26b

Other (land, animals, etc.)

§9:10.34 Line 27 Repairs and Maintenance

§9:10.35 Line 28 Seeds and Plants Purchased

§9:10.36 Line 29 Storage and Warehousing

§9:10.37 Line 30 Supplies Purchased

§9:10.38 Line 31 Taxes

§9:10.39 Line 32 Utilities

§9:10.40 Line 33 Veterinary, Breeding, and Medicine

§9:10.41 Line 34 Other Expenses (specify)

§9:10.42 Line 35 Total Expenses; Add Lines 12 Through 34f

§9:10.43 Line 36 Net Farm Profit or (Loss); Subtract Line 35 From Line 11

§9:10.44 Line 37 If you have a loss, you must check the box that describes your investment in this

activity (see page F-6); 37a All investment is at risk; 37b Some investment is not at risk

§9:10.45 Part III Farm Income—Accrual Method

§9:10.46 Line 38 Sales of Livestock, Produce, Grains, and Other Products During the Year

§9:10.47 Line 39a Total Cooperative Distributions (Form(s) 1099-PATR); Line 39b Taxable Amount

§9:10.48 Line 40a Agricultural Program Payments; Line 40b Taxable Amount

§9:10.49 Line 41 Commodity Credit Corporation (CCC) Loans (see page F-3); Line 41a CCC Loans

Reported Under Election; Line 41b CCC Loans Forfeited; Line 41c CCC Taxable Amount

§9:10.50 Line 42 Crop Insurance Proceeds

§9:10.51 Line 43 Custom Hire (Machine Work) Income

§9:10.52 Line 44 Other Income, Including Federal and State Gasoline or Fuel Tax Credit or Refund

§9:10.53 Line 45 Add Amounts in the Right Column for Lines 38 Through 44

§9:10.54 Line 46 Inventory of Livestock, Produce, Grains, and Other Products at Beginning of the Year

§9:10.55 Line 47 Cost of Livestock, Produce, Grains, and Other Products Purchased During the Year

§9:10.56 Line 48 Add Lines 46 and 47

§9:10.57 Line 49 Inventory of Livestock, Produce, Grains, and Other Products at End of Year

§9:10.58 Line 50 Cost of Livestock, Produce, Grains, and Other Products Sold; Subtract Line 49

§9:10.59 Line 51 Gross Income; Subtract Line 50 From Line 45

§9:20 BATTLE LINES

§9:30 THE INVESTIGATION

FORMS

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9-3 Schedule F: Profit or Loss From Farming §9:00

QUICK TAKE

Parents may be involved in agricultural activities to make a living. There are numerous

aspects to these types of operations which make the determination of economic income for

a parent challenging.

WHAT YOU SEEK

Schedule F (Form 1040)

Form 4562 Depreciation and Amortization

RESOURCES

Internal Revenue Service Instructions for Schedule F

Internal Revenue Service Farmer’s Tax Guide (Publication 225)

Internal Revenue Service Business Expenses (Publication 535)

§9:00 THEORY

Farming and ranching are businesses like any

other business. The taxpayers (parents) perform

an activity for which they get paid. They incur

expenses while performing the activity. These

expenses are deducted from the amount of income

that is generated. The parents then pay taxes on

the difference or the net income. The process,

income and expenses are very similar to those of a

self-employed individual. Please refer to Chapter

5, Schedule C — Profit or Loss from Business for

more information and discussion.

For child support, farm and ranch opera-

tions cause investigators a unique set of problems.

Owners of these operations are typically very close

to their businesses, both physically and economi-

cally. Whereas many businesses’ owners leave their

homes everyday and proceed downtown to open up

shop, farmers and ranchers live in their business.

The ranch house is in the middle of the ranch. The

farm house is often in the middle of the farm with

the wheat fields starting a few feet from the farmer’s

bedroom window. Therefore, like the parent with a

home office, the challenge for the investigator is to

separate business expenses from personal.

Farmers and ranchers may also have sig-

nificant control over when they report income.

For example, there is nothing requiring a wheat

farmer to sell his crop when he harvests it. He may

simply fill up his grain bins with the wheat until

the price goes up. Unfortunately, this also means

that he can put off selling the grain and, therefore,

avoid declaring the associated income while child

support is being determined. This type of situation

requires that the investigator not only identify the

situation but also propose an adjustment. See The

Investigation for a suggested handling.

The other related challenge for investigators

is to recognize that the very nature of farming

can provide economic benefit to the operator.

For example, a farmer, in addition to raising

wheat, plants a large garden every year. He rais-

es potatoes, beets, lettuce, carrots and so forth.

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