Farmer Income Tax - NCAT Beginning Farmer Business Tip Sheet Series - Key Guidance

Sep 19, 2026

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Farmer Income Tax provides beginning farmers with a brief, practical overview of key income tax issues, including how taxable farm income is determined and why ordinary business costs are not automatically part of income. It explains recordkeeping for production costs, limits deductions such as non-business portions of phone and home expenses, and describes travel and vehicle deductions by business use. It also compares Schedule F versus Schedule C, discusses cash versus accrual accounting, capital gains treatment, farmer versus hobbyist rules, and points to IRS resources for filing guidance.

LanguageEnglish

CategoryForms

FormatPDF

Pages2

Reading Time1 min

AccessFree to download

Farmer Income Tax

Costs of Doing Business

Schedule F or Schedule C?

Capital Gains

Farmer or Hobbyist?

Depreciation

Tips about: NCAT Beginning Farmer Business Tip Sheet Series Farmer Income Tax Taxes and death are said to be the only certain things in life. This tip sheet provides a brief overview of some important farm income tax issues and o ers resources where beginning farmers can 􀀞nd the answers to their general questions. To learn more, contact a tax professional, especially one who has experience working with farmers. Costs of Doing Business Perhaps the first thing you need to know about income and income tax is that the costs of doing business are not part of your income. Not everything about the tax code is common sense, but this is. if you sell a bushel of apples for $40, but it cost you $30 to produce it (considering the costs of fuel, fertilizer, marketing, phone calls, electricity for the cooler, tools, and all the reasonable costs of production), you only made $10, and that is what is taxable. So, save those receipts because you have to be able to show that you really only made $10, even though what you put in the bank was $40. As sensible as this sounds, figuring the costs of production can be tricky, especially since so many beginning farmers are conducting much of their business out of their homes. For instance, you might use the phone as part of your marketing efforts, but you cannot deduct the full costs of your phone bill as a business expense, only the percentage that was business related. Likewise, you can deduct business-related travel, but not the entire cost of the truck, unless the truck is only used for farm business. You can deduct a percentage of your home mortgage for the space dedicated to the farm office. You can deduct a percentage of your electric bill if you can reasonably calculate the percentage that went to farm needs, and so on. Remember that you might be called upon to defend these costs to a tax auditor, so be as honest and as accurate as you can. It probably goes without saying, but a professional tax accountant or preparer, especially one experienced with farm tax or at least home-based business taxes, could be very helpful in these regards. Schedule F or Schedule C? The income tax form Schedule F, Pro􀀞t and Loss from Farming, is what you will use for all your farm reporting. But, again, you must be careful, for if your farm has a related business, like a gift shop or restaurant, then the income and costs associated with that activity would have to be reported on a Schedule C, Pro􀀞t or Loss from Business (Sole Proprietorship). If you had a produce stand but did not grow any of the produce sold there, the business is not a farm and, again, you would have to use Schedule C. It is generally advantageous to report farm income and expenses on Schedule F income tax form because farms are allowed to use cash accounting and most other businesses (Schedule C) are required to use accrual accounting. In cash accounting you report the income and expenses as they are actually received or paid, and in accrual accounting you report the income and expenses at the time the goods were shipped and an invoice received which may occur before or after the bill is paid and cash changes hands. For example, you had compost delivered, which came with an invoice, in December of 2011, but you didn’t pay the bill until 2012. In cash accounting, you would put that expense in 2012, while in accrual accounting, you’d enter it in 2011. For more information on filing farm income taxes, see: IRS Publication 225 Farmers Tax Guide: [www.irs.gov/publications/p225/ch13.html](www.irs.gov/publications/p225/ch13.html) Schedule F: [www.irs.gov/pub/irs-access/f1040sf_accessible.pdf](www.irs.gov/pub/irs-access/f1040sf_accessible.pdf)[ ](www.irs.gov/pub/irs-access/f1040sf_accessible.pdf)[Schedule C: www.irs.gov/pub/irs-pdf/f1040sc.pdf](Schedule C: www.irs.gov/pub/irs-pdf/f1040sc.pdf) | Capital Gains
When a business asset is sold, it should generally not be listed as farm income and should be listed as a capita

FAQs

Are farm production costs included in taxable income?

No. Business costs are not part of your income. You generally tax the difference between sale proceeds and reasonable production costs you can document.

When should a farmer use Schedule F versus Schedule C?

Use Schedule F (Profit and Loss from Farming) for farm reporting. Use Schedule C for a related non-farm business activity such as a gift shop or restaurant, or a produce stand if you did not grow the produce sold.

How do cash accounting and accrual accounting affect when expenses are reported?

Cash accounting reports when money is received or paid, while accrual accounting reports when goods are shipped and invoices are received. An unpaid bill tied to a prior delivery/invoice is usually deducted in the earlier period under accrual accounting.

Sep 19, 2026

Upload by Maeve