Form 1040 Schedule F (Farm Income and Loss) for Tax Year 2019: Comprehensive Compliance Checklist
Basic Filing Requirements
Step 1: Determine Filing Eligibility
File Schedule F if you operated a farm for profit in 2019 as an owner or renter. Attach Schedule F to Form 1040, Form 1040-SR, Form 1040-NR, Form 1041, or Form 1065. If you were born before January 2, 1955, you may use Form 1040-SR, which features larger print designed for seniors age 65 and older.
Step 2: Select Your Principal Agricultural Activity Code
Choose one of the 14 principal agricultural activity codes from Part IV of Schedule F that best describes your primary source of farm income. This classification helps the IRS properly categorize your farming operation.
Step 3: Choose Your Accounting Method
Select either the cash or the accrual method. Cash method reports income when received and expenses when paid. The accrual method reports income when it is earned and expenses when they are incurred. Farming syndicates must use the accrual method. Small business taxpayers with average annual gross receipts of $26 million or less may use the cash method.
Income Reporting
Step 4: Report Sales and Gross Receipts
Report all sales of livestock, produce, grains, and other farm products. Include cash received and the fair market value of property or services received in exchange.
Step 5: Report Cooperative Distributions
Enter cooperative distributions on line 3a, including patronage dividends, per-unit retain allocations, and nonpatronage distributions. Show both cash dividends and the stated dollar amount of qualified written notices of allocation.
Step 6: Report Government Payments
Enter agricultural program payments on line 4a, including price loss coverage, agriculture risk coverage, Market Facilitation Program payments, and cost-share payments. Report only the taxable amount on line 4b after applying any exclusions.
Step 7: Handle CCC Loans Correctly
CCC loan proceeds are generally not income when received. You may elect under IRC Section 77 to report loan proceeds as income in the year received. If you forfeit a CCC loan without making the income election, report the forfeited amount on line 5b. If you elected to report the loan as income, generally no additional entry is required on line 5c.
Step 8: Report Crop Insurance and Disaster Payments
Enter all crop insurance proceeds received in 2019 on line 6a. You may elect under IRC Section 451(f) to defer eligible proceeds to 2020 if 2019 was the year of damage. The deferral applies to all eligible proceeds from a single farming business. Report taxable amounts on line 6b. If you deferred 2018 proceeds to 2019, include those amounts on line 6d.
Expense Deductions
Step 9: Deduct Car and Truck Expenses
Use the standard mileage rate of 58 cents per mile for 2019, or deduct actual expenses. Multiply business miles by 58 cents and add parking fees and tolls. Use actual expenses if you operated five or more vehicles simultaneously. Complete Form 4562 Part V for all vehicle deductions.
Step 10: Claim Depreciation
Depreciate buildings, machinery, vehicles, and permanent equipment. First-year vehicle depreciation limits: $18,100 with bonus depreciation, $10,100 without bonus depreciation. Qualified property acquired after September 27, 2017, may be eligible for 100% bonus depreciation. Complete Form 4562 when claiming depreciation.
Step 11: Elect Section 179 Expensing
The maximum Section 179 deduction for 2019 is $1,020,000. This phases out dollar-for-dollar when the total property placed in service exceeds $2,550,000. Sport utility vehicles are limited to $25,500. Your deduction cannot exceed taxable income from active business conduct. Make the election on Form 4562.
Step 12: Deduct Conservation Expenses
Deduct soil and water conservation expenses up to 25% of gross income from farming. Expenses must align with NRCS-approved conservation plans. Excess amounts carry forward to future years. Do not deduct expenses for draining wetlands or preparing land for center pivot irrigation.
Step 13: Apply Prepaid Farm Supplies Limitation
Prepaid farm supplies include seed, fertilizer, and feed not consumed during 2019. Deduction is generally limited to 50% of other deductible farm expenses. Deduct excess amounts only when consumed in future years. Exceptions apply for consistent historical prepayment patterns.
Step 14: Deduct Farm Labor Costs
Deduct wages paid to employees, excluding yourself. Reduce deduction by employment-related credits claimed. Include boarding costs for farm labor. File Forms 1099 if you paid $600 or more for services. Check the box on line F if you filed the required Forms 1099.
Step 15: Deduct Employee Benefits
Deduct contributions to employee accident and health plans, group-term life insurance, and dependent care programs. Reduce deduction by small employer health insurance premium credits. Self-employed health insurance premiums are not deductible on Schedule F but may be claimed on Schedule 1, line 16.
Step 16: Understand Business Interest Limitations
Business interest expense may be limited under IRC Section 163(j). Small businesses with average annual gross receipts of $26 million or less are exempt from this requirement. Farming businesses may opt out by using alternative depreciation. Complete Form 8990 if limitations apply.
Step 17: Deduct Mortgage Interest
Report mortgage interest from Form 1098 on line 21a. Report other mortgage interest on line 21b. Do not deduct prepaid interest for future years. Include only the portion applicable to 2019.
Step 18: Deduct Insurance Premiums
Deduct farm business insurance premiums on line 20. Do not deduct self-insurance reserves or personal disability insurance. Employee health insurance goes on line 15, not line 20.
Step 19: Deduct Custom Hire and Other Expenses
Deduct custom hire expenses when someone performs work using their equipment and operator. Report equipment rental or lease payments on line 24a. Deduct supplies purchased and consumed during 2019.
Material Participation and Passive Activity
Step 20: Determine Material Participation
Check “Yes” on line E if you meet any IRS material participation test, including 500 hours of participation or substantially all the work. Retired or disabled farmers meeting prior participation requirements are treated as materially participating. Surviving spouses actively managing the farm may qualify.
Step 21: Apply Passive Activity Loss Limitations
Suppose you did not materially participate and have a loss, complete Form 8582. Passive losses are limited to passive income. Disallowed losses carry forward to future years. Material participation status determines whether losses are currently deductible.
Special Elections
Step 22: Consider Qualified Joint Venture Election
Married couples who jointly own and materially participate may elect qualified joint venture status. Each spouse files a separate Schedule F reporting their share. Each spouse receives Social Security credits. This avoids a partnership return filing. Make the election by filing separate Schedules F.
Step 23: Evaluate Livestock Sales Deferral
Defer income from livestock sold due to weather-related conditions if your area qualified for federal disaster aid. Your main business must be farming. Report deferred income in the following tax year. Maintain documentation supporting the weather-related sale.
Step 24: Apply Capitalization Rules
Small business taxpayers with average annual gross receipts of $26 million or less are exempt from IRC Section 263A capitalization requirements. If capitalization applies, add direct and indirect costs to the inventory or property produced. Special rules apply for plants with preproductive periods exceeding two years.
Tax Compliance
Step 25: Calculate Self-Employment Tax
Complete Schedule SE to calculate self-employment tax on net farm profit. Self-employment tax covers Social Security and Medicare. Each qualified joint venture spouse pays self-employment tax on their share. You can deduct one-half of the self-employment tax on Schedule 1.
Step 26: Meet Estimated Tax Requirements
If two-thirds or more of your gross income came from farming, file your return and pay all tax by March 1, 2020, to avoid estimated tax penalties. Alternatively, make required estimated tax payments using regular rules. Use Form 2210-F to determine penalty amounts.
Required Forms and Documentation
Step 27: Attach Required Forms
Form 4562 is required for depreciation, Section 179 elections, and listed property. Form 4797 is required for sales of breeding livestock. Form 4835 is used if you did not materially participate in crop-share rentals. Form 6198 calculates at-risk limitations. Form 8582 determines passive activity losses. Form 8990 calculates business interest limitations. Schedule SE computes self-employment tax.
Step 28: File Information Returns
File Form 1099-MISC or Form 1099-NEC if you paid $600 or more for services, rent, or prizes. File employment tax returns if you have employees. File Form 8300 if you received cash payments exceeding $10,000 in related transactions. Check the box on line F if you filed the required Forms 1099.
Step 29: Maintain Proper Records
Keep accurate records to support all income and expenses. Maintain depreciation schedules that show the basis, method, and recovery period. Document material participation hours and activities. Retain Forms 1099 received from all sources. Keep records for at least three years from the date you file your return.
Step 30: Consult Additional Resources
Review IRS Publication 225, Farmer’s Tax Guide, for detailed examples and guidance.
Consider consulting a tax professional for complex situations involving large operations, partnerships, special elections, or estate planning issues.
Need Help With Your Tax Filing?
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
We offer:
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
Call now before filing: (888) 260-9441
Fast transcript pull available
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.
