View Full Version : Income Taxes - Schedule F Question

01-13-2012, 05:57 PM
Just starting to put my taxes together. I use a database to track my expenses. I entered the amount I spent buying chicks for the first time this year and there doesn't seem to be a Cost of Livestock line on the Schedule F.

I know I can add my own category under Line 32 Other Expenses, but it seems odd that livestock isn't a standard item on the form.

Where do you put the cost of buying livestock on your Schedule F?

Thanks, erica

01-14-2012, 08:38 AM
This is a little more complicated then what you might think, here's the reasoning...

Buying livestock that will be used for re-sale is usually expensed through the 'Prepaid Farm Supplies' category. To make it easier to visualize you can refer to the chicks as your 'seeds' for either growing eggs, fryers or more baby chicks. Their feed and any other costs directly associated with their health and/or safety are also valid expenses.

Example = expenses
1 baby chick 1.00
feed .50
shots .25
total 1.75

income from sales =
1 grown chicken 2.00

gross profit .25

Also - if you buy the 'supplies' in one year and use them in the next year it has to be handled accordingly - example: if the life span of a laying hen is 2 years; you take half the cost of the chick in each year, not all in one year (normally).

I hope this has helped! If you have other questions or need more examples you can PM me.... I have done agricultural accounting for many moons and it never gets any easier ;)

02-25-2012, 10:09 AM
There are two different types of Livestock that can be purchased...that used for resale which means you bought chicks intent on raising them and then will sell them after they are raised...lets say.

The other kind is brood livestock, those purchased for breeding stock.

I am a sheep farmer and I can buy lambs from another sheep farm to raise to adult and then sell them for a profit, that being called market lambs. In that case I can deduct them under the schedule F form because they are bought with the intent to resale within the same calendar year. In non-farm terms this would be like buying raw lumber, making a chair out of it, and then selling the chair. You could deduct the cost of lumber because that is consider supplies and materials.

But breeding stock ewes I cannot. They are considered a capital cost, an investment needed for the business to grow. In that case deprecation comes into place. Where as a chicken might have a 2 year lifespan, a sheep averages 7 years of productivity, therefore I must deduct the cost over a 7 year span. In non-farm terms this would be like someone buying a pizza shop and then expecting to deduct the cost of buying the shop in the first year...NO...its an investment that will pay off over the long term and so it is with breeding livestock...its an investment in the farm.

I am not trying to talk down to anyone here, I am just trying to explain it in simple terms so people understand why there is no direct deductions for breeding stock livestock.

BTW: You run into this capital cost stuff with fencing as well. It too is considered an investment in the farm and must be deducted over the lifetime of the fence...7 years typically.

BTW: Tractors and other equipment normally cannot be deducted in a single calendar year unless you use the Section 179 Form which can be quite lucrative, especially in the last few years. However, you got to be careful or you can get into trouble with rapid depreciation.

02-26-2012, 07:13 PM
If you're new to Schedule F, it might be a good idea to use a CPA for the first year and have them explain it all to you. The next year you can follow the prior year's form and do it yourself. Farm taxes are major complicated with various categories and depreciation.

02-27-2012, 07:06 AM
There is an excellent Instructional Manual that you can get for the Schedule F Form. You can print it off the IRS website, or you can pick up copies of it at your local Cooperative Extension.

It does an extremely good job of telling you how to fill it out, gives you plenty of examples to go by, and really allows you to see how each step in the complicated process works.

Myself; I use a CPA every year, but I have found the better job I do with my taxes, the cheaper his cost is.