Schedule F – Profit/Loss From Farming

Crop Production, Animal Production, or Forestry and Logging

Accounting Methods for Farmers

1)Cash method

2)Accrual method – required for certain farm corporations and partnerships, & for all tax shelters.  Generally, if inventories are used to figure gross income, the accrual method is required.  However, an exception is allowed for taxpayers with average annual gross receipts of $1 million or less.  Farmers who are required to use an accrual method are subject to UNICAP for plants (even if the plant preproductive period is two years or less) and animals.

3)Special methods for certain income and expense items – Crop method – Can be used by farmers who do not complete harvesting and disposing of crops within the tax year they planted (Exception:timeber).  The entire cost of producing the crop, including expenses of seed or young plants, is deducted in the year the income from the crop is realized.

4)Combination method – May be used if it reflects income and is used consistently.  Certain restrictions apply

Limit on Farm Losses - For tax years beginning after 2009, the farming loss of taxpayer (other than a C corporation) who receives an applicable subsidy is limited to the great of (1) $300,000 ($150,000 if MFS) or (2) the taxpayer’s total net farm income for the prior five tax years.

Farm Inventories – Inventories include all unsold items at the end of the tax year, whether raised or purchased, that are held for sale or for use as feed, seed, etc.  Generally, growing crops are not included in inventory.

Valuation methods

1)Cost

2)Lower of cost or market

3)Farm-price method – Each item is valued at the market price less the estimated direct cost of disposition (such as broker’s commission, freight and hauling to market, etc.)

4)Unit-livestock-price method – Livestock is classified according to kind and age, and a standard unit price is used for each animal within a class.  All raised livestock and livestock purchased for sale must be included in inventory.  Animals purchased for draft, breeding, dairy or sporting purposes may be treated as depreciable assets or included in inventory.

1040 Quickfinder Handbook