Taxpayers should use Form 1040, Schedule F to report income and expenses from farming activity as a self-employed farmer. Net profits are subject to Self Employment Tax (Schedule SE).
For tax purposes, a farmer is defined as any individual who cultivates (plants, waters, gathers crop), operates, or manages a farm for profit. They can either own the farm land or lease it as a tenant. The term farm can include livestock, dairy, poultry, fish, fruit, plantations, ranches, ranges, orchards, and nurseries. For a complete definition see Publication 225 - Farmer's Tax Guide.
To create an entry on Schedule F, from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Farm Income (Sch F)
- If you have Schedule F return data from the prior year and wish to pull it forward, select Prior. Otherwise, select New.
- For a new Schedule F:
- Indicate if it is for the Taxpayer or Spouse, if applicable;
- Enter a Principal Business Activity Code. This is a code used by the IRS to classify the type of business being operated. All of the farm-related codes are listed;
- Enter the EIN, if applicable;
- Review and answer the questions in the Schedule F - Questions Menu. The answers provided are the default answers for most situations, however any of them may need to be adjusted for this particular business.
- For a Schedule F pulled forward from the prior year:
- Review the assets in the Depreciation Module. If any were disposed of, select the asset, and in the Depreciation Data Entry Screen select Disposition and enter the details requested.
- Review items under the Schedule F - Questions Menu to verify they are still correct.
- Income generated by the business can be entered by selecting Income on the Schedule F - Edit Menu. Enter the income received in the appropriate menu item.
- Expenses incurred by the business can be entered by selecting Expenses from the Schedule F - Edit Menu. Select Depreciation to enter new assets to be depreciated or indicate the disposition of existing assets. For vehicles, the standard mileage is entered in the Car & Truck menu, and actual expenses are listed in the Depreciation Module under Listed Property.
- Select the Qualified Business Income Deduction Amounts menu to include the amount of wages paid on W-2s and also to indicate if this is a Specified Service Business (SSB) as defined by the IRS. Refer to Publication 535, Business Expenses to determine if the farming business is a SSB as well as determine if the business activity generally qualifies for the QBID.
- If there was a prior year unallowed loss, enter the amount on the Schedule F - Questions menu. CAUTION: Only enter a prior year unallowed loss if the current year's activity is a net profit. If the current year's activity is a net loss, an amount entered here will cause an incorrect calculation.
Entering Schedule F Expenses
Expenses incurred by the business are entered under the Expenses menu. When entering expenses, you can create supporting notes to keep track of certain expenses. If you select an expense and see Press F10 to Create Supporting Notes:
- Select the F10 key on your keyboard.
- Select the New button and type in a description of the expense
- Enter the amount paid and select Ok.
- If you have more than one item that falls under the category, click the New button again and type the description and amount. These items will total together and carry back to the expense line. When you use F10 to detail expenses, a supporting statement will be generated with the tax return itemizing the expense according to the details you entered.
Entering an asset in the Schedule F Depreciation Module
From the Schedule F - Edit Menu select:
- Expenses
- Depreciation
- Depreciation Module
- If you have prior year data to pull forward, select Pull. Any data available to be pulled forward will display. Otherwise, select New.
- Input the requested information about the asset: a description of the asset (use details to help differentiate it from other similar assets in the depreciation schedule), the date placed in service, cost, and the percentage of business use. Enter both the federal and state Section 179 Deduction if the taxpayer is taking this deduction, any accumulated depreciation, and the depreciation method to use. If you are not sure what depreciation method is appropriate for a particular asset, refer to Publication 946.
- If the property has been disposed of, be sure to select Disposition, answer YES to being disposed of, enter the disposition date, and then indicate if you want the asset to be carried to Form 4797. If you are carrying the amount to Form 4797, enter the sales price and indicate which section of the form to carry the asset, either Part I, Part II, or Part III.
Entering Car & Truck Expenses
There are two methods that can be used to deduct vehicle expense, Standard Mileage and Actual Expenses. However, only one method may be used per vehicle, with some exceptions.
To enter the Standard Mileage, from the Schedule F - Edit Menu select:
- Expenses
- Car & Truck
- Car & Truck (Std Mileage Rate - Form 4562)
- Enter/Edit Vehicles
- Select New
- Enter the date the vehicle was placed in service along with the Business Miles, Commuting Miles, and Personal Miles driven.
Entering Vehicle Actual Expenses and Depreciation for Schedule F
To enter a vehicle in the Depreciation Module, from the Schedule F - Edit Menu select:
- Expenses
- Depreciation
- Depreciation Module
- Select New. Select Pull if you prepared the return using the software in the previous year and wish to pull the data forward.
- In the Depreciation Entry screen, enter a description of the asset (use details to help differentiate from other vehicles in the Depreciation Schedule), date placed in service, cost, and the percentage of business use, the Section 179 Deduction if the taxpayer is taking this deduction, any accumulated depreciation, and the property class. Regarding the percentage of business use:
- If the percentage of business use is 100% and the vehicle is categorized under Listed Property, the commuting and personal mileage will be zero.
- If the percentage of business use is less than 100% and the vehicle is listed under Listed Property, then enter the business, commuting, and personal miles in the Listed Property menu, and the program will calculate the percentage of business use.
- If the percentage of business use is less than 100%, and the vehicle is not listed under Listed Property, then calculate the percentage of business use as follows:
Business Miles / (Business Miles + Personal Miles + Commuting Miles) - If the asset fits the definition of Listed Property:
- Select Listed Property, and select YES to confirm
- Select the listed property category
- Enter the mileage in the three categories.
- Enter the Actual Expenses (items such as gas, oil, tires, repairs, etc.). Use F10 to detail the various expenses.
- If the property has been disposed of, be sure to select Disposition, answer YES to being disposed of, enter the disposition date, and then indicate if you want the disposition to be carried to Form 4797. If you are carrying the amount to Form 4797, enter the sales price and indicate which section of the form to carry the asset, either Part I, Part II, or Part III.
To edit an existing Schedule F business, from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Farm Income (Sch F)
- Select the entry and click Edit or double-click the entry you wish to Edit.
To Delete a Schedule F business, from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Farm Income (Sch F)
- Select the entry you wish to delete and select the Delete button on the screen or on your keyboard
- You will be asked to confirm deletion. Select YES
NOTE: This is a guide to creating and editing Schedule F in the TaxSlayer Pro program. This is not intended as tax advice. For additional information refer to the Additional Information below.
Additional Information:
Instructions for Schedule F, Profit or Loss From Farming
Publication 225, Farmers Tax Guide
Publication 463, Travel, Entertainment, Gift, and Car Expenses
