The first three lines of Part I are used when the farmer or rancher engages in an enterprise or activity of the farm business where items are purchased and then resold later. Commonly, purchased feeder livestock being raised by the farmer or rancher fall into this category. Likewise, a farmer may have a “small” seed or other farming input resale business which could be reported using these three lines. Records should be kept to account for and identify these specific transactions.
Example 1. In February Rob purchases 100 feeder pigs weighing 50 pounds each for $50 per head. Rob feeds these pigs until late August when they reach market weight of 275 pounds and then sells the pigs for processing at a live weight price of $82 per hundredweight or $225.50 per animal. [2.75 x $82] Rob reports this sale in the following manner.
Line 1a is used to report the gross sale price of $22,550 of the hogs. [$225.50 x 100, assuming zero death loss]
Line 1b is used to report the cost of the pigs which is $5,000 [$50 x 100]. One might consider this to be a “cost of goods sold” calculation. Two important points to remember: First, if Rob had bought these pigs in late November and carried them over to the subsequent year in the feeding program, he must carry over the cost of the pigs to the year of sale and not deduct them in the year of purchase. Second, any costs associated with the acquisition of these animals such as trucking, should be added to the cost of the pigs and accounted for in this manner.
Line 1c is the reportable income after the cost has been subtracted. This reportable income becomes part of the “Gross Income From Farming” found on line 9. In this example, $17,550 is reported here. [$22,550 - $5,000].
Note that other ordinary and necessary expenses such as feed, veterinary and interest are reported in Part II, Farm Expenses on separate line numbers..
Example 2. In addition to operating a corn/soybean farm, Jill sells corn and soybean seed as a recognized dealer with a national brand. Jill benefits as she can reduce her personal seed costs. However, her seed sales are generally less than 5 percent of her total farming operation and she chooses to report this activity on her IRS Schedule F rather than IRS Schedule C. Her gross seed sales were $35,000 and her wholesale costs were $28,000, thus she nets $7,000. She reports on lines 1 a, b and c as shown below.
In this case, Jill’s seed expense for corn and soybeans she plants might be accounted for here as part of the discount Jill received from the national seed brand. Alternatively, she could allocate that expense to Line 26 of Schedule F and in doing so increase her income on Line 1c, her net farm income is the same.
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.