Estimated Quarterly Taxes: Who Pays and How It Works
From Tax Guide.
Tax Guide · Arab, Alabama
Farm and Agricultural Income Taxes Explained
How farm income is reported on Schedule F, what poultry and livestock growers should track, and why farm taxes differ from other small business returns.
The short answer
How are farm taxes different from other business taxes?
Farm income is usually reported on Schedule F of your Form 1040, and farming has its own rules for timing, expenses and payments that other small businesses do not have.
If you raise crops, livestock, poultry or other agricultural products with the aim of making a profit, you are generally treated as running a farm business. Your net profit or loss from the farm flows to your personal return, and net profit is usually subject to self-employment tax as well as income tax. Our guide to self-employment tax explains how that works.
Farmers in Marshall County and across north Alabama often have income that swings with weather, markets and contract terms, so planning ahead matters more than in a steady salaried job.
What is income
What counts as farm income on Schedule F?
Farm income includes money from selling what you raise or grow, and several other receipts that are easy to miss.
Sales of crops, livestock, eggs, hay, timber and similar products are income. So are payments from a poultry or livestock integrator to a contract grower, which are often reported as farm income, though the exact treatment depends on your contract. Government farm program payments, crop insurance proceeds and custom hire work are generally reportable too.
Some payers send a Form 1099 and some do not. Not receiving a form does not mean the income is not taxable, so keep your own records of everything you receive.
- Sales of livestock, poultry, eggs, crops and hay
- Contract grower settlements and payments from an integrator
- Government program payments and crop insurance proceeds
- Rent received for farmland or equipment, which may be reported differently
- Sales of equipment or breeding animals, which have their own rules
Expenses
What expenses can a farmer deduct?
Farmers can generally deduct ordinary and necessary costs of running the farm, and Schedule F has lines for the most common ones.
Feed, seed, fertilizer, fuel, veterinary bills, labor, repairs, insurance, utilities, interest and supplies are typical examples. Equipment, barns and poultry houses usually cannot be deducted all at once in the ordinary way, and are instead depreciated over time. The rules on depreciation are detailed and change, so we check the current ones each year.
Personal and family living costs are not farm expenses, and a vehicle used for both the farm and the household is deducted only for the farm portion. See our guide to vehicle and mileage deductions for how that split works. For a wider list, read business expense deductions.
Timing and payments
Do farmers have to pay estimated taxes?
Many farmers do pay estimated taxes, because no employer is withholding tax from farm income during the year.
Estimated tax is paid in installments through the year by people without enough withholding. Farmers may have special rules on when the payments are due or how they can be avoided, depending on how much of their income comes from farming. Because those rules are specific, we confirm which apply to you.
Many farms use the cash method of accounting, which means you report income when you receive it and deduct expenses when you pay them. That gives some flexibility about timing, but it needs careful tracking. If your farm income arrives in big lumps, our estimated quarterly taxes guide is a good place to start.
Records
What farm records should I keep for my tax return?
Keep a record of every dollar that comes into the farm and goes out, plus the papers that show what you own.
Farm records do more than support a return. They can also show whether the operation is run to make a profit, which matters if the IRS ever asks whether a farm is a real business or a hobby. Keep them for at least three years, and longer for equipment, land and breeding stock, since those records show your basis when you sell.
- Settlement sheets, sales receipts and deposit records
- Bills for feed, supplies, labor, repairs and fuel
- Purchase papers for equipment, buildings and land
- Government program and crop insurance statements
- A log or calendar of business use for trucks and tractors
Alabama
How does Alabama treat farm income?
Farm income reported on your federal return generally carries over to your Alabama Form 40, but Alabama has its own rules and we check how they apply.
Alabama starts with many of the same figures as the federal return, and a change on one can change the other. Alabama also has its own rules on sales and use tax that may affect farm purchases, and we do not want to guess at those. The Alabama Department of Revenue is the place to confirm any exemption that applies to your purchases.
If you are thinking about a farm loan, a new structure such as an LLC, or a large equipment purchase, talk to your preparer before you sign or buy. Our tax planning service is built for that kind of decision.
How we can help
How Melton Tax Services can help farmers
We prepare farm returns as part of our income tax preparation service.
Our income tax preparation covers the self-employed, including farm owners and contract growers. We help you sort out your income, expenses and depreciation, and we report them on the right forms for both federal and Alabama.
We serve Arab and the surrounding area. Call 256-586-4635 or use our contact page to set up a visit. Bring your settlement sheets, receipts and prior returns to the office, and please do not send Social Security numbers or documents through the website.
Answers
Questions about farm income taxes
Do poultry growers file Schedule F?
Many contract poultry growers report their settlement income on Schedule F, but the treatment depends on the contract and how the operation is run. Bring your contract and settlement sheets so we can confirm.
Is farm income subject to self-employment tax?
Net farm profit is generally subject to self-employment tax, which is the Social Security and Medicare tax paid by the self-employed. A farm loss does not create a tax bill in the same way.
Can I deduct a farm loss against my other income?
Sometimes, but there are limits, especially if the activity looks more like a hobby than a business. The rules depend on profit motive and how the farm is run.
Do I need to send 1099 forms to my farm workers?
It depends on whether they are employees or independent contractors. Employees receive W-2s, and contractors paid above the reporting threshold receive Form 1099-NEC. Farm labor has its own rules, so we check them.
What happens if I sell farm equipment?
A sale can produce a gain or loss, and depreciation you took earlier may affect the result. Keep the purchase papers and depreciation records for each item.
Are government farm payments taxable?
Generally yes, they are reportable income, though some payments have special treatment. Bring the statements you receive so we can report them correctly.
Read next
Related reading
Self-Employment Tax Explained: What You Owe and Why
From Tax Guide.
Business Expense Deductions: What Can I Write Off?
From Tax Guide.
Vehicle and Mileage Deductions for Business
From Tax Guide.
Tax Planning
A service Melton Tax Services provides.
Melton Tax Services
Questions about your taxes or your business?
Our team in Arab is just a phone call away, and we are glad to talk it through with you.