Schedule F: Do You Need to File This IRS Form?

This tax form for the self-employed covers farmers, ranchers, and those who raise fish or livestock -- as well as some who receive farm-related rent and government program payments.

Dan Caplinger
Dan Caplinger
Jun 11, 2015 at 8:00PM
Investment Planning

Source: Flickr user Jimmy Brown.

Farming is the quintessential American profession, with the promise of immense tracts of open land enticing millions of immigrants throughout the early part of the nation's history. Yet along with the opportunity of the New World came the inevitability of taxes, and now, those who earn their living profiting from the land have to file returns with the Internal Revenue Service. If you're a self-employed farmer, then IRS Schedule F is the place where you'll report the income and expenses of your operations. In addition, even some of those who choose not to engage in farming activity run into Schedule F from time to time. Let's take a closer look at Schedule F to figure out whether it might apply to you.

Schedule F and what a farmer is according to the IRS
The first thing to understand about Schedule F is that in the eyes of the IRS, the form for farming applies to more than just traditional farmers. Income from farming includes producing livestock, dairy, poultry, fish, or fruit as well as traditional crops, as well as operating a plantation, ranch, range, grove, or orchard.

In addition, some people have to file Schedule F even if they don't directly farm their land. Those who rent out land and materially participate in farm operations, then you'll report the income on Schedule F. Similarly, if you receive payments from certain agricultural programs, such as the Conservation Reserve Program, then you often need to include that money as income on Schedule F as well. Those who receive crop insurance or disaster payments or participate in farm cooperatives also have to report their shares of income using this IRS form.

When Schedule F is a good thing
The benefit of filing Schedule F is that as a self-employed farmer, you can take deductions for the expenses of owning and operating your farm. Indeed, when you look at Schedule F itself, you can see a wide range of farm-related expenses that are deductible, including feed, fertilizer, seeds, veterinary expenses, storage, and freight costs associated with shipping farm products to market. Associated expenses like farm equipment and fuel also qualify for deduction, as do utilities and insurance costs connected to the business operation.

By contrast, those who are treated as hobby farmers generally can't take deductions above and beyond the amount of revenue they bring in. Essentially, hobby farmers have to pay taxes if they make profits, but they can't deduct their hobby losses against other types of income. Those who are seen as being bona fide professional farmers, on the other hand, are allowed to claim business losses from farming on their taxes.

Dealing with other tax issues
Farmers who file Schedule F generally also have to deal with other tax forms related to self-employment income. Self-employment tax essentially requires you to pay your share of Social Security and Medicare payroll taxes that employees pay, as well as an additional amount that represents what would ordinarily be the employer's share of those taxes. The bite out of your income can be considerable, with self-employment tax rates of 15.3% applying to the first $118,500 of income for 2015.

Perhaps more importantly than anything else, though, Schedule F acts as a gateway toward understanding other provisions of tax law that apply to farm operations. Things like credits or refunds of excise taxes on fuel are specific to farmers, and the references that Schedule F's instructions make to such items can save you a lot in taxes that you might otherwise have missed.

Filling out complex IRS forms is never a pleasant task, and Schedule F has a number of intricate provisions you'll need to get familiar with. In some cases, though, Schedule F can open the door to deductions that you otherwise wouldn't be able to claim, and that can produce sizable savings at tax time.