Rachel RespondsSeptember 27, 2018

Adding value to your farm products.

Question:

Does value-added production change the way I do tax reporting and accounting?

Answer:

Yes, value-added production and sales activities are handled differently than agricultural production and sales activities with respect to federal taxes. Income and expenses from a value-added enterprise are generally reported on Schedule C, Profit or Loss from Business, rather than on Schedule F.

This is different from the tax requirements for income and losses from farm production (which are reported on Schedule F). As the IRS defines it, farming activities include growing and harvesting crops, raising livestock or poultry, and preparing unmanufactured farm products for market and delivery to market. Any processing of a farm product beyond washing, handling, packing, grading, or storing (basically, beyond the minimum required for sale) will be classified as non-farming and is reported on Schedule C.

FOR MORE INFORMATION: Read Farm Commons’ resource, Value-Added/Agritourism and Taxes Tipsheet: How does starting an agritourism or value-added venture affect my taxes? This tipsheet helps farmers with diversified farms determine how to properly report income and expenses from both their farming and non-farming enterprises on their federal tax returns.

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