Farmers use Lines 32a, Schedule F to report expenses that do not have a specified place on Lines 10 – 31. The following table lists common expenses reported on Line 32.
| Common Expenses Reported on Line 32 | |
|---|---|
| Advertising | Home office supplies |
| Farm business start-up expenses | Business use of the farm home |
| De minimis safe harbor for tangible property | Forestation and reforestation expenses |
| Legal and professional fees | Tools with a short life or low price |
| Travel and meals | Pre-productive period expenses |
| Bad debts | Excess business loss limitation |
Example 1. Ricardo farms and has the following expenses, which are not reportable on lines 1-31: Professional fees of $2,500 for accounting and payroll services, $150 for office supplies, and $1,000 for a home office deduction (200 square feet office space using the $5 per square foot safe harbor). Ricardo reports these expenses on Lines 32 a – c, Schedule F.
Example 2. Lisa ranches in the west. This year she attended a Ranching Conference to increase her management skills. She spent $500 on airfare, $250 on conference registration, $200 on restaurant meals, and $50 on airport parking. Lisa reports and deducts this expense on Line 32a, Schedule F.
Startup Costs
Tax rules allow farmers (and other businesses) to elect to deduct up to $5,000 of “startup costs” and amortize the excess (up to $50,000) over 180 months. Any start-up costs greater than $50,000 are offset dollar-for-dollar such that, once $55,000 is reached, all start-up costs must be amortized over the 180-month period. Startup costs are those expenses incurred to become an active trade or business.
Example 3. On January 1 of this year, Amal began her pick-your-own berry farm on land she inherited from her parents. Since this is a new business, Amal needs to calculate her start-up costs and deduct them subject to the rules. Amal, spent $20,000 in allocable start-up expenses, $5,000 of which she may deduct currently, but she must amortize the remaining $15,000 over 180 months ($83.33/mo.). Thus, Amal’s total start-up deduction allowed this year is $6,000 [$5,000 + (12 x $83.33)], reported and deducted on Line 32a, Schedule F. Then, over the subsequent 14 years, Amal will annually deduct $1,000 of the remaining start-up costs.
Reforestation
Reforestation costs are generally capital expenses. Under IRC § 194 reforestation rules, however, forest landowners who are in the business of timber production can deduct up to $10,000 per unique qualified tract for qualifying reforestation expenses. Any reforestation expenses greater than $10,000 per tract must be amortized over 84 months. Such deductions are taken on Line 32a – f, Schedule F.
Example 4. Rick is a tree farmer and has frequent timber sales originating from several thousand acres of forestland he owns. This February, Rick spent $32,000 on reforesting three unique tracts of harvested land: $8,000 on Tract 1, $10,000 on Tract 2, and $14,000 on Tract 3. This year, Rick may deduct $28,000 of reforestation [$8,000 + $10,000 + $10,000] plus the $523.81 amount from Tract 3 which is amortized [($4,000/84) x 11]. Therefore, Rick deducts $28,523.81 on Line 32a, Schedule F. He deducts the remaining amount over the next 73 months.
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.