2016 Schedule F (Form 1040) Tax Filing Checklist
Overview
Schedule F (Form 1040) reports profit or loss from farming activities for the tax year 2016. This form must be attached to Form 1040, Form 1040NR (nonresident aliens), Form 1041 (estates and trusts), Form 1065 (partnerships), or Form 1065-B (electing large partnerships). The 2016 tax year maintains the core income and expense reporting structure while emphasizing accurate material participation determinations and proper application of passive activity loss limitations.
Key 2016 Tax Year Provisions
Excess Farm Loss Limitations
For 2016, excess farm loss limitations apply only to farmers who received an applicable subsidy during the year. An applicable subsidy includes direct payments, counter-cyclical payments under Title I of the Food, Conservation, and Energy Act of 2008, or Commodity Credit Corporation loans.
If you received an applicable subsidy, your farm loss deduction is limited to the greater of $300,000 ($150,000 for married filing separately) or your aggregate net farm income over the previous five years. Any disallowed excess farm loss carries forward to future tax years.
Crop Insurance Deferral Elections
Line 6c provides a checkbox mechanism to elect deferral of eligible crop insurance proceeds and federal disaster payments from 2016 to 2017. This election requires attaching a written statement to your return documenting the damaged crops, insurance carriers, dates, amounts deferred, and demonstrating that the damage occurred in 2016.
CCC Loan Treatment Options
Commodity Credit Corporation loans offer two treatment options that affect line 5 reporting. You may elect to include CCC loan proceeds as income in the year received, or you may treat them as borrowed funds and report only gains from forfeiture or repayment in subsequent years. This election impacts both the current year's tax liability and future year tax consequences.
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Deductibility Restrictions
Schedule F for 2016 permits deduction of ordinary and necessary farm business expenses but explicitly prohibits deducting personal or living expenses, expenses for items raised for family consumption, the value of animals that died (unless properly documented as casualty losses), and inventory losses not properly accounted for under accepted inventory methods.
Step-by-Step Filing Process
Step 1: Confirm Farming Activity and Eligibility
You are engaged in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant. Qualifying farming activities include livestock operations, dairy farms, poultry production, fish farms, fruit orchards, truck farms, plantations, ranches, ranges, and groves.
Do not file Schedule F to report income from agricultural services provided on a fee or contract basis, including soil preparation, veterinary services, farm labor, horticultural services, or farm management services. Report these activities on Schedule C (Form 1040) instead.
Do not use Schedule F for income from breeding, raising, or caring for dogs, cats, or other pet animals. Report these activities on Schedule C (Form 1040).
Do not use Schedule F for sales of livestock held for draft, breeding, sport, or dairy purposes. Report these transactions on Form 4797 (Sales of Business Property).
Verify that your activity qualifies as farming before proceeding with Schedule F.
Step 2: Select and Enter Accounting Method
Line C requires you to select either the cash method or the accrual method of accounting. You must use the selected method consistently throughout the tax year.
If you use the cash method, check the “Cash” box on line C and complete Parts I and II of Schedule F. The cash method reports income when actually or constructively received and expenses when paid.
If you use the accrual method, check the “Accrual” box and complete Parts II and III, then enter the amount from Part III, line 50, on Part I, line 9. The accrual method reports income when earned and expenses when incurred, regardless of payment timing.
You cannot switch accounting methods without IRS consent. Your initial choice on your first Schedule F filing establishes your method unless you obtain approval using Form 3115 (Application for Change in Accounting Method).
Step 3: Enter Principal Agricultural Activity Code
Line B requires entering the correct six-digit North American Industry Classification System code from Part IV of Schedule F that best identifies your primary farming activity. Select only the single code that most accurately describes your principal agricultural operation.
The 2016 Schedule F, Part IV, includes codes for various crop production activities, such as oilseed and grain farming, vegetable and melon farming, fruit and tree nut farming, greenhouse nursery and floriculture production, and other crop farming. Animal production codes encompass beef cattle ranching and farming, cattle feedlots, dairy cattle and milk production, hog and pig farming, poultry and egg production, sheep and goat farming, aquaculture, and other forms of animal production. Additional codes are available for forestry and logging operations.
Step 4: Determine Material Participation Status
Line E asks whether you materially participated in the operation of the farming business during 2016. Material participation is determined using seven tests established by the Internal Revenue Code and detailed in Publication 225.
You meet the material participation standard if you satisfy any one of the following tests: you participated in the activity for more than 500 hours during the year; you were the sole participant or you performed substantially all services; you participated more than 100 hours and not less than any other individual; you materially participated through multiple significant participation activities; you materially participated in the activity for any five of the last ten years; you materially participated in any personal service activity for any three prior years; or you participated on a regular, continuous, and substantial basis based on all facts and circumstances.
Check “Yes” on line E only if you meet at least one of these tests. If you check “No” and report a loss, you may be subject to passive activity loss limitation rules requiring completion of Form 8582.
Step 5: Gather Income Documentation
Collect all 2016 income documentation, including Form 1099-MISC, Form 1099-PATR (cooperative distributions), Form 1099-G or CCC-1099-G (agricultural program payments), insurance settlement statements, crop disaster payment notices, and records of bartered goods or services received.
For mortgage interest on farm property, obtain Form 1098 from the lending institution if you paid $600 or more in mortgage interest during 2016.
Step 6: Complete Farm Income Reporting
For cash method filers, complete Part I, lines 1 through 8, reporting all income actually or constructively received during 2016, plus the fair market value of goods or property received.
Line 1a reports sales of livestock and other items purchased for resale. Line 1b reports the cost or other basis of these items. Line 1c calculates gross income from resale items by subtracting line 1b from line 1a.
Line 2 reports sales of livestock, produce, grains, and other products you raised rather than purchased for resale.
Line 3a reports total cooperative distributions, including patronage dividends received from cooperatives. Line 3b reports only the taxable portion of cooperative distributions.
Line 4a reports agricultural program payments. Line 4b reports only the taxable portion of these payments.
Line 5a reports CCC loan proceeds if you elected to include them as income in the year received. Line 5b reports CCC loans forfeited. Line 5c reports only the taxable amount from forfeited loans.
Line 6a reports the total amount of crop insurance proceeds and federal crop disaster payments received in 2016. Line 6b reports the taxable amount you are including in your 2016 income. Line 6c provides a checkbox if you are electing to defer eligible proceeds to 2017. If you elect deferral, you must attach a statement to your return that documents the damaged crops, the amounts deferred, and demonstrates that the damage occurred in 2016. Line 6d reports any crop insurance proceeds received in 2015 that you elected to include in 2016 income.
Line 7 reports custom hire income. Line 8 reports other farm income, including federal and state gasoline or fuel tax credits or refunds, as well as miscellaneous farm income.
Line 9 totals all income from lines 1c, 2, 3b, 4b, 5a, 5c, 6b, 6d, 7, and 8.
For accrual method filers, complete Part III (lines 37 through 50) instead of Part I (lines 1 through 8). Enter the result from Part III, line 50, on Part I, line 9.
Step 7: Verify Information Fields
Enter your Social Security Number in the form header. Enter your Employer Identification Number on line D only if you have been issued an EIN on Form SS-4. Do not enter your SSN or another taxpayer’s EIN on line D.
Enter your principal crop or activity name on line A. Verify that the form header indicates tax year 2016 and that you have identified the correct parent form (1040, 1040NR, 1041, 1065, or 1065-B) to which Schedule F will be attached. Answer all questions on lines E (material participation), F (Form 1099 filing requirement), and G (confirmation of Form 1099 filing).
Step 8: Gather Expense Documentation and Complete Part II
Assemble all 2016 receipts, invoices, canceled checks, and records documenting farm business expenses. Organize expenses by category corresponding to Schedule F, Part II line items.
Line 10 reports car and truck expenses. You may use either the actual expense method (reporting the business portion of expenses such as gasoline, oil, repairs, insurance, and license plates) or the standard mileage rate. For 2016, the standard mileage rate is 54 cents per mile for business miles driven from January 1 through June 30, 2016, and 54.5 cents per mile for business miles driven from July 1 through December 31, 2016. If you claim vehicle depreciation, you must attach Form 4562.
Line 11 reports chemicals and pesticides. Line 12 reports conservation expenses limited to 25% of gross farm income. Line 13 reports custom hire (machine work) and hired services.
Line 14 reports depreciation and Section 179 expense deductions. You must complete and attach Form 4562 for any depreciation claimed, section 179 elections, or listed property.
Line 15 reports employee benefit programs, excluding pension and profit-sharing plans. Do not include health insurance premiums for yourself as a self-employed person on this line.
Line 16 reports the purchase of feed for livestock. Line 17 reports fertilizers and lime. Line 18 reports freight and trucking costs, excluding transportation costs for purchasing livestock for resale, which should be included in the cost of the livestock.
Line 19 reports gasoline, fuel, and oil. Line 20 reports farm business insurance, excluding self-insurance reserves and health insurance for the self-employed individual.
Line 21a reports mortgage interest paid to banks and financial institutions. Attach Form 1098 if you received one. Line 21b reports all other interest on farm business debt.
Line 22 reports labor hired, including boarding costs for farm workers. Do not include the value of farm products consumed by employees.
Line 23 reports contributions to pension and profit-sharing plans for employees. Line 24a reports rent or lease of vehicles, machinery, and equipment. Line 24b reports rent or lease of land and animals.
Line 25 reports repairs and maintenance. Line 26 reports seeds and plants purchased. Line 27 reports storage and warehousing costs. Line 28 reports supplies purchased for farm operations.
Line 29 reports taxes, including real estate taxes on farm property, sales taxes on farm purchases, and business property taxes. Do not include federal income taxes or estimated tax payments.
Line 30 reports utilities. Line 31 reports veterinary, breeding, and medicine expenses.
Lines 32a through 32f provide space for other farm business expenses not listed on lines 10 through 31. Specify each expense type and amount. Other expenses may include advertising, office supplies, legal and professional fees, business travel and meals (subject to limitations), start-up costs, and reforestation expenses.
If line 32f shows a negative amount, follow the specific instructions provided in the Schedule F instructions for proper treatment.
Step 9: Apply Prepaid Expense and Capitalization Rules
If you prepay farm supplies such as feed, seed, or fertilizer for use in a later year, you are limited to deducting prepaid expenses not exceeding 50% of your other deductible farm expenses in the year of payment. Excess prepaid amounts must be deducted in the year the supplies are consumed.
Livestock feed paid in 2016 but consumed in 2017 is subject to this 50% limitation. Calculate the limitation by comparing your total prepaid supply expenses to 50% of all other deductible farm expenses.
Poultry purchased for use in your farming business must be capitalized and deducted ratably over the lesser of 12 months or the useful life of the poultry. Poultry purchased for resale is deductible only in the year sold.
If you are required to capitalize expenses under section 263A (Uniform Capitalization Rules), enter the total capitalized amount in parentheses on line 32f and write “263A” in the margin. These rules generally apply to taxpayers with average annual gross receipts exceeding specified thresholds.
Step 10: Calculate Net Farm Profit or Loss
Line 33 totals all farm expenses from lines 10 through 32f. Add all expense line items, treating any negative amount on line 32f according to the instructions.
Line 34 calculates net farm profit or loss by subtracting line 33 (total expenses) from line 9 (gross income).
If line 34 shows a profit, you are finished with Schedule F. Report the profit amount on Form 1040, line 18, or the appropriate line on your parent form. If your net farm earnings are $400 or more, you must also complete Schedule SE (Form 1040) to calculate self-employment tax.
If line 34 shows a loss, you must complete lines 35 and 36.
Step 11: Apply Loss Limitation Rules
Line 35 asks whether you received an applicable subsidy in 2016. An applicable subsidy includes direct payments, counter-cyclical payments under the Food, Conservation, and Energy Act of 2008, or any CCC loan. Check “Yes” or “No” as appropriate.
If you check “Yes” on line 35, you must calculate whether the excess farm loss limitation applies. Your deductible farm loss is limited to the greater of $300,000 ($150,000 for married filing separately) or your aggregate net farm income over the previous five years. Use the worksheets provided in the Schedule F instructions to calculate any excess farm loss that must be carried forward.
Line 36 addresses at-risk limitations under Internal Revenue Code section 465. Check box 36a if all your investment in the farming activity is at risk. Check box 36b if some investment is not at risk.
Investment not at risk includes amounts financed through nonrecourse debt not personally guaranteed, amounts protected by guarantees or stop-loss agreements, and amounts borrowed from persons with an interest in the activity or from related parties.
If you check box 36b, you must complete and attach Form 6198 (At-Risk Limitations) to calculate your allowable loss. Your deductible loss is limited to your at-risk basis in the activity. Losses exceeding your at-risk amount are suspended and carried forward to future years.
If you answered “No” on line E regarding material participation, you must also complete Form 8582 (Passive Activity Loss Limitations) to determine your allowable passive activity loss. Passive activity losses can only offset passive activity income and cannot offset other types of income, such as wages or investment income.
Step 12: Assemble Required Attachments and File
Once you have completed all applicable lines on Schedule F, gather all required supporting schedules and forms.
Attach Form 4562 (Depreciation and Amortization) if you claimed any depreciation, section 179 deductions, or reported listed property on line 14.
Attach Form 6198 (At-Risk Limitations) if you checked box 36b indicating that some investment is not at risk.
Attach Form 8582 (Passive Activity Loss Limitations) if you answered “No” to material participation on line E and have a farm loss subject to passive activity limitations.
If you elected to defer crop insurance proceeds to 2017 by checking the box on line 6c, attach a written statement documenting the specific crops damaged, insurance carriers, policy numbers, dates of damage, amounts received, and amounts deferred. The statement should demonstrate that the crop damage occurred in 2016.
Attach Schedule F to the appropriate parent form: Form 1040 (U.S. Individual Income Tax Return), Form 1040NR (U.S. Nonresident Alien Income Tax Return), Form 1041 (U.S. Income Tax Return for Estates and Trusts), Form 1065 (U.S. Return of Partnership Income), or Form 1065-B (U.S. Return of Income for Electing Large Partnerships).
Verify that all schedules are in the correct sequence and that the Social Security Number on Schedule F matches the SSN on the parent form.
File your completed return by April 18, 2017. This deadline (rather than April 15) applies because Emancipation Day, a legal holiday in the District of Columbia, is observed on April 17, 2017. If you need additional time to prepare your return, file Form 4868 (Application for Automatic Extension of Time to File) by April 18, 2017, to obtain an automatic six-month extension to October 16, 2017. Note that extensions extend the time to file but not the time to pay any taxes due.
Record Retention Requirements
Maintain all farm business records supporting the income and expenses reported on Schedule F. Keep receipts, invoices, canceled checks, bank statements, Forms 1099, Forms 1098, mileage logs, depreciation schedules, and all other source documents.
The general statute of limitations requires retaining records for at least three years from the date you filed your return or the date the return was due, whichever is later. However, if you have carryforward items such as suspended passive losses, excess farm losses, or net operating losses, you should retain records for as long as those items may affect your tax liability.
Contemporaneous records provide the best support for your tax return in case of an IRS examination. Organized recordkeeping also facilitates accurate tax preparation and helps identify all available deductions.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
