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Instructions for the Preparation of Income Tax Form 1040-F
This provides an easy and convenient means for keeping a daily record of
farm income and expenses. If kept accurately, it will make the preparation
of your income tax report comparatively simple.
A beginning inventory of machinery, buildings, improvements and livestock
should be taken at the first of the year and the value entered in columns 1
and 3 of the Inventory Schedule. The value at the end of the year should be
entered in columns 2 and 4. Inventory figures for livestock, grain, seed and
feed should be entered at cost or market price, whichever is the lower.
Sales and purchases of capital items, such as buildings, machinery, etc., must
not be considered as income or expenses in figuring monthly operating results.
Depreciation of capital items is recorded at the end of the year.
INCOME AND DEDUCTIBLE AND NON-DEDUCTIBLE EXPENSES FOR THE FARMER
Income items:
Agricultural program payments
Breeding fees
Commodity Credit Corporation loans (if election is made)
Fire or storm insurance procees on crops
Groceries or merchandise received in exchange for farm produce
Hail insurance proceeds on growing crops
Hire of teams, machinery, etc.
Livestock or produce sold
Patronage dividends from Cooperatives
Reimbursement of livestock or other property destroyed by government
Rents received in crop shares (income when shares are sold)
Soil Conservation and Domestic
Allotment Act receipts
Refund of gas and oil tax
Non-Taxable Items
Produce consumed by farmer and family
Deductions:
Advertising of farm products
Animals purchased and lost by death
Automobile upkeep
Bad debts
Breeding fees
Combining amounts paid for labor
Cost of feed purchased
Crop insurance premium
Depreciation of buildings and equipment of a permanent nature
Depreciation of livestock acquired for work, breeding or dairy purposes, not included in inventory
Depreciation of orchard
Electricity
Fence repair and maintenance
Fertilizer cost (unless to restore fertility or increase productivity over a period of years)
Gasoline, other fuel and oil for farm
Ginning, amounts paid for
Insurance on farm property (except dwelling)
Interest on farm obligations
Limiting farm land
Livestock killed by State of Federal authorities (cost less depreciation)
Losses
Machine hire and repairs
Pasture rental
Rent paid in cash or crops (amounts paid in raising crop only)
Repairs and maintenance (except on dwelling house)
Salaries for household work in boarding and housing laborers
Seed and annual plants, purchased
Supplies purchased (twine, spray material disinfectant, containers, etc.)
Taxes
Telephone
Threshing amounts paid for labor
Tools of short life, cost of
Travel expenditures, farm business
Veterinary and medicine for livestock
Wages of hired labor
Non-Deductible Items:
Animals raised by farmer and lost by death (if on cash basis)
Automobile cost
Capital expenditures
Cost of raising produce consumed by farmer and his family
Depreciation on dwelling or personal or household equipment
Depreciation of livestock included in inventory
Feed grown on farm
Household expenses
Loss of prospective crop (frost, storm, flood or fire)
Machinery cost
Repairs on dwelling or personal or household equipment
Shrinkage or deterioration of stored products
Trees, decorative
Value of farmer's own labor, or that of wife or dependent minor children
PREPARING YOUR INCOME TAX RETURN...THIS IS YOUR TAX GUIDE
For quick help in preparing final return on your income. This return must be filed
on or before March 1, unless you have filed a declaration on April 15 (last) and have
made the quarterly estimated payments throughout the current year, In this cases, your
final return may be filed April 15.
Net Income must be computed not only on the basis of a fixed accounting period (calendar
year or fiscal year), but also in accord with a method of accounting employed in keeping
your records (cash or accrual basis).
ACCRUAL BASIS A farmer on the accrual basis must use inventories taken at the start
and at the end of this taxable year. Such a farmer may also use Form 1040F or he can use
only Schedule C on Form 1040. Use of Form 1040F in conjunction with Form 1040 is optional,
although Form 1040F does contain a convenient schedule for showing inventories, lists items
of income and deduction, etc. Gross profit of a farmer on the accrual basis is found by adding
the amount received from the sale of livestock and products (and any other receipts, such as
the amount received from the hire of teams, a thresher, etc.) to the inventory value of livestock
and products at the end of the year. Then, subtract from this total and sum of the inventory
value of livestock and products at the beginning of the year and the cost of such items bought
during the year. Livestock raised or bought for sale must be included in the inventory at the
proper valuation, determined by the farmer's regular method. Livestock bought or draft, breeding
or dairy purposes and not for resale, may be included in the inventory; but it may instead, be
treated as capital assets subject to depreciation -- provided this method is consistently followed.
If livestock included in inventory is sold, its cost must not be taken as an additional deduction
in the return of income,since the inventory would reflect the cost.
CASH BASIS: A farmer on the cash basis does not use inventories. In addition to filing his
regular Form 1040, he must file a supplemental Form 1040F, "Schedule of Farm Income and Expenses."
A farmer who keeps no records is also compelled to file the supplemental Form 1040F. A farmer on
the cash basis must include in gross income all cash or the value of merchandise or other property
received from the sale of livestock or produce which he has raised, profits from the sale of livestock
or other items which have been bought by him, and the gross income received from all other sources.
Profit from the sale of livestock or other items bought by the farmer is computed by deducting the
cost from the sales price. In the case of animals being sold, after having been bought originally
as draft or work animals or for breeding or dairy purposes (and not for resale), the profit is the
difference between the sales price and the depreciated basis of the animal sold.
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