The information in this article is up to date through tax year 2020 (taxes filed in 2021).
Farmers typically have a variety of income sources. You must report your income from all sources on your tax return, unless it is excluded by law. These rules apply to farmers using the cash method of accounting, which is the case for most farmers. If you use the accrual method of accounting, read chapter 2 of IRS Publication 225, Farmer’s Tax Guide.
Where do I report my farm income?
Individuals, trusts, partnerships, and sole members of a domestic LLC in the farming business report farm income and expenses on Schedule F, Form 1040. This form is used to determine the net profit or loss from regular farming operations.
When do farmers need to pay estimated tax?
When you are a calendar year taxpayer, your estimated tax payment is due on January 15 the year after you earned it. So, for income earned in 2020, your estimated tax is due on January 15, 2021. But there is an exception. The IRS says you don’t need to make an estimated tax payment if you 1) file your return and 2) pay all the tax you owe by March 1.
Note: If you did not pay your estimated tax by January 15, be sure to file and pay in full by the IRS deadline on March 1 to avoid an estimated tax penalty.
What sources of income are included on Schedule F?
Income reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit. You must report income from operating a:
- Nursery specializing in ornamental plants
Amounts received from the sales of products raised on your farm and items you purchased for resale are also included on Schedule F. When selling products bought for resale, your profit or loss is the difference between your selling price (money plus the fair market value of any property) and your basis in the item (the cost). You must report profit or loss from products such as:
Income from crop share sales is also reported on Schedule F if you materially participate (are significantly involved) in producing the crop. Examples of materially participating include:
- Covering at least half of the operating expenses,
- Providing at least half the tools, equipment, and/or livestock,
- Advising the tenant, and/or
- Regularly taking part in management decisions
Farm income does not include any of the following:
- Wages you receive as a farm employee
- Income from contract grain harvesting and hauling with workers and machines you provide
- Gains from the sale of farmland and depreciable farm equipment
For more details, read IRS Publication 225, Farmer’s Tax Guide.