It has been often stated that farmers sell at wholesale; buy at retail, and pay freight both directions. Line 18 is used to report and therefore, deduct, transportation charges for items which are purchased for the farming business. Likewise, if a hauling charge is assessed for transporting feeder cattle to a feedlot,the expense is reported on this line. However, if the farmer or rancher is buying feeder cattle to be either backgrounded or finished and then resold later, this transportation charge is separated and included in the basis of these livestock and ultimately reported on Line 1b when the animals are sold.
Example: Raul bought a new planter from his local dealership. Unfortunately, Raul’s dealer did not have the planter in stock but was able to locate one 500 miles away. The $750 trucking charge was added as a separate invoice item for Raul’s new planter. Raul can deduct the $750 cost as a necessary and ordinary business expense on Line 18 of Schedule F.
Note: Unrelated to Schedule F, farmers often wonder if they must send a 1099-NEC or 1099-MISC to those to whom they pay freight. IRS instructions for the forms exclude freight from the categories of payments for which 1099s must be sent. IRS discussed this issue in detail in this Office of Chief Counsel Memorandum from 2014.
The Center for Agricultural Law and Taxation is a partner of the National Agricultural Law Center (NALC) at the University of Arkansas System Division of Agriculture, which serves as the nation’s leading source of agricultural and food law research and information. This material is provided as part of that partnership and is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.