2021 Schedule F (Form 1040) Tax Filing Checklist
Overview
Schedule F (Form 1040) reports profit or loss from farming activities for the tax year 2021. Attach it to Form 1040, Form 1040-SR, Form 1040-NR (nonresident aliens), Form 1041 (estates and trusts), or Form 1065 (partnerships). The 2021 tax year includes pandemic assistance programs, qualified sick and family leave wage credits, and maintains the special two-year net operating loss carryback for farming losses.
Key 2021 Tax Year Provisions
Coronavirus Food Assistance Program payments received in 2021 are reported on lines 4a and 4b as agricultural program payments. The American Rescue Plan Act allows eligible self-employed farmers to claim refundable credits for qualified sick and family leave wages from April 1 through September 30, 2021, using Form 7202 to reduce self-employment tax. Farming losses for 2021 may be carried back two years under special farm NOL rules.
Allowable and Prohibited Deductions
You may claim depreciation and section 179 expense deductions using Form 4562, farm labor expenses excluding payments to yourself, interest on farm business debt, conservation expenses limited to 25% of gross income, and casualty losses on farm property using Form 4684.
Do not deduct personal or living expenses, self-employment tax as a direct expense, nonfarming income, pet breeding or care activities, or agricultural service fees as principal income. These items should be reported on Schedule C or other applicable forms.
Required Forms and Attachments
Complete Schedule SE for self-employment tax. Attach Form 4562 if claiming depreciation or section 179 deductions. File Form 6198 if any investment is not at risk. Complete Form 8582 if passive activity loss limitations apply. Use Form 4684 for casualty or theft gains and losses.
Step-by-Step Filing Process
Step 1: Enter Agricultural Activity Code
On line B, enter the six-digit NAICS code from Part IV that best describes your primary farming activity. Choose from 14 codes covering crop production (oilseed and grain farming, vegetable and melon farming, fruit and tree nut farming, greenhouse nursery and floriculture production, other crop farming), animal production (beef cattle ranching, cattle feedlots, dairy cattle and milk production, hog and pig farming, poultry and egg production, sheep and goat farming, aquaculture, other animal production), and forestry and logging operations.
Step 2: Select Accounting Method
On line C, check “Cash” if you report income when received and expenses when paid. Check “Accrual” if you report income when earned and expenses when incurred. Farming syndicates cannot use the cash method and must use the accrual method.
Step 3: Complete Employer Identification Number
On line D, enter your EIN if you have one issued on Form SS-4. If you are a sole proprietor without an EIN, leave this line blank. Do not enter your SSN or another taxpayer’s EIN.
Step 4: Determine Material Participation
On line E, check “Yes” if you materially participated in farm operations during 2021 by meeting any of the seven passive activity tests or if you are a retired farmer who participated in 5 or more of the 8 years immediately preceding retirement. Check “No” if you did not materially participate. If “No” and you have a loss, complete Form 8582.
Step 5: Report Farm Income
Complete Part I for cash method filers. Line 1 reports sales of purchased livestock and resale items. Line 2 reports sales of products you raised. Lines 3a and 3b report cooperative distributions from Form 1099-PATR. Lines 4a and 4b report agricultural program payments, including CFAP payments. Lines 5a through 5c report CCC loans if you elected income treatment. Lines 6a through 6d report crop insurance and disaster payments. Line 7 reports custom hire income. Line 8 reports other farm income. Line 9 totals all income.
Step 6: Apply Crop Insurance Deferral
If crop damage occurred in 2021 and you elect to defer income to 2022, check the box on line 6c and attach a statement. The deferral applies only to physical damage payments for crops you typically sell more than 50% of in the following year. Document the damaged crop, normal business practice, cause and dates of damage, payments received, and carrier information. Report any 2020 deferred proceeds on line 6d.
Step 7: Report Farm Expenses
Complete Part II to report ordinary and necessary farm business expenses. Line 10 reports car and truck expenses. Line 11 reports chemicals. Line 12 reports conservation expenses, limited to 25% of the income on Line 9. Line 13 reports custom hire services. Line 14 reports depreciation and section 179 deductions (attach Form 4562). For 2021, the maximum Section 179 deduction is $1,050,000, which is reduced when property is placed in service exceeding $2,620,000.
Lines 15–20 report employee benefits, feed, fertilizers, freight, fuel, and insurance. Lines 21a–21b report interest (attach Form 1098 if applicable). Line 22 reports labor less credits. Line 23 reports pension contributions. Lines 24a–24b report rent. Lines 25–31 report repairs, seeds, storage, supplies, taxes, utilities, and veterinary expenses. Lines 32a–32f report other expenses. Line 33 totals all expenses.
Step 8: Calculate Net Farm Profit or Loss
Line 34 subtracts line 33 from line 9. If you have a profit, report it on Schedule 1 if net earnings are $400 or more; complete Schedule SE. If you have a loss, proceed to line 36 for at-risk limitations.
Step 9: Apply At-Risk Limitations
Line 36 addresses at-risk rules under IRC Section 465. Suppose any investment is not at risk (nonrecourse debt not personally guaranteed, amounts protected by guarantees, or amounts borrowed from interested parties), file Form 6198 to calculate allowable loss. Losses exceeding at-risk amounts are suspended and carried forward.
Step 10: Calculate Self-Employment Tax
Complete Schedule SE to calculate self-employment tax on line 34 net farm profit or loss. For 2021, the self-employment tax is 15.3% (12.4% Social Security plus 2.9% Medicare) on 92.35% of net earnings. Social Security applies to the first $142,800 of combined income. Medicare applies to all earnings. Additional Medicare Tax of 0.9% applies to income exceeding $200,000 (single) or $250,000 (married filing jointly). Calculate on Form 8959 if applicable.
Step 11: Claim Sick and Family Leave Credits
If you could not work from April 1 through September 30, 2021, due to COVID-19 illness, quarantine, caring for someone with COVID-19, or caring for a child whose school closed, claim credits on Form 7202 to reduce self-employment tax.
Step 12: Address Passive Activity Losses
If you did not materially participate (line E is “No”) and have a loss, complete Form 8582. Passive losses generally offset only passive income, not wages or investment income. Disallowed losses are suspended and carried forward.
Step 13: Complete Accrual Method Reporting
Suppose you are using the accrual method, complete Part III to calculate the beginning inventory, purchases, ending inventory, and net change. An inventory increase represents an increase in income; a decrease reduces income. Use the unit-livestock-price method or the farm-price method consistently.
Step 14: Assemble and File
Attach Form 4562 if claiming depreciation. Attach Schedule SE for self-employment tax. Attach Form 6198 if the investment is not at risk. Attach Form 8582 if passive losses apply. Attach the crop insurance deferral statement if applicable. Attach Schedule F to the appropriate return form. Verify that all schedules are in sequence and have matching identification numbers.
Prohibited Uses of Schedule F
Do not use Schedule F for agricultural services (soil preparation, veterinary services, farm labor, horticultural services) without farm ownership, pet breeding or care, farm management services for others, or sales of livestock held for draft, breeding, sport, or dairy purposes. Use Schedule C or Form 4797 instead.
Qualified Joint Venture Election
If you and your spouse jointly own and operate a farm and both materially participated, you may elect qualified joint venture treatment. Each spouse files separate Schedule F and Schedule SE forms showing their respective shares on a jointly filed Form 1040. This avoids filing Form 1065 while allowing each spouse to receive Social Security credit.
Record Retention
Maintain receipts, invoices, bank statements, Forms 1099, Forms 1098, mileage logs, depreciation schedules, and supporting documents for at least three years from the filing date or due date, whichever is later. Retain records longer if you have carry-forward items such as suspended losses or net operating losses.
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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.
