Quick answer: Schedule F is the IRS form active farmers and ranchers attach to Form 1040 to report farm profit and loss. It covers income from crop sales, livestock sales, government payments, and custom work, minus all farm operating expenses. Net profit is subject to both income tax and self-employment tax (15.3% up to the Social Security wage base). Schedule F farmers also qualify for income averaging and farm NOL carrybacks.
What Income Goes on Schedule F
Schedule F covers income from your farming or ranching operation. That includes:
- Crop and grain sales (corn, wheat, cotton, sorghum, hay)
- Livestock sales — cattle, hogs, sheep raised for sale (not breeding stock)
- Government program payments (ARC, PLC, Market Facilitation Payments)
- Agricultural program payments and conservation reserve program (CRP) payments
- Custom farming work performed for others
- Cooperative distributions and patronage dividends
- Insurance proceeds for crop losses or disaster payments
Breeding livestock, machinery, and land sales are generally reported elsewhere — on Form 4797 for depreciated business property, and on Schedule D for capital assets.
Key Expenses You Can Deduct
Schedule F allows deduction of all ordinary and necessary farming expenses: seed and plants, fertilizer and lime, chemicals, fuel and oil, repairs and maintenance, labor hired, machinery rent, custom hire, feed purchased, interest on farm loans, insurance, and farm-share rent paid. Depreciation on equipment, buildings, and improvements is calculated separately on Form 4562. Good recordkeeping throughout the year — fuel logs, purchase receipts, inventory records — is essential. The IRS scrutinizes farm returns, particularly when losses offset off-farm income year after year.
The Estimated Tax Rule for Farmers
Farmers have a special estimated tax rule: if at least 2/3 of gross income comes from farming, you can skip quarterly estimated payments and instead file and pay all tax due by March 1 (the following year) — or make a single January 15 estimated payment and file by April 15. This flexibility is designed to match the cash-flow reality of farming, where income arrives at harvest. If you're new to farming or your income mix is changing, confirm which rule applies with your CPA to avoid underpayment penalties.
Questions About Your Ranch or Farm Situation?
Kyle Ellison is a fourth-generation Texas Panhandle rancher and licensed financial professional in TX, CA, NV, MT, UT, NM.