How do Schedule F deductions work for my small family farm compared to standard deduction?

So if I understand correctly, I can deduct my feed costs, equipment purchases, and veterinary bills on Schedule F while still taking the standard deduction? Does this apply even if my farm operates at a loss most years?

Yes, you can deduct legitimate farm expenses like feed, equipment (though larger equipment may need to be depreciated), and veterinary bills on Schedule F while still taking the standard deduction. These are separate mechanisms on your tax return. Regarding operating at a loss, that's where things get a bit more complicated. The IRS has something called "hobby loss rules." If your farm shows losses for too many years (generally 3 out of 5 years should show profit), the IRS might reclassify your operation as a hobby rather than a business. If that happens, you lose the ability to deduct losses against other income. You'd need to show that you're running the farm with the intent to make a profit through good business practices, marketing efforts, and expertise development.

How does it handle equipment purchases? I bought a used tractor last year for $5,700 and I'm confused about whether to expense it all at once or depreciate it. Does the tool give guidance on that kind of decision?

Sounds too good to be true honestly. How would a website know what the IRS considers legitimate farm expenses versus personal expenses? Like if I buy a truck that I use 60% for farm and 40% for personal stuff.

It actually handles equipment purchases really well. It asks about the equipment's purpose, purchase price, and expected lifespan. For your tractor, it would likely recommend using Section 179 expensing (which lets you deduct the full amount in year one) or bonus depreciation, depending on your overall tax situation. It explains the pros and cons of each approach. For mixed-use assets like trucks, it walks you through proper allocation based on business use percentage. It asks for your estimated business use (like your 60% example), explains what documentation you need to keep (mileage log, business purpose notes), and calculates the appropriate deduction. It also warns you about common audit triggers for mixed-use assets and helps keep you in compliance.

Wait, how does this actually work? Does it just keep calling the IRS for you? And do they actually get you through faster than if you called yourself?

Right, because some random service is definitely going to get you through to the IRS faster than anyone else. The IRS doesn't give priority to third parties. This sounds like a complete waste of money for something you could do yourself if you're just patient enough.

It doesn't make more calls than you would - it uses an automated system that navigates through all the IRS phone menus and waits on hold for you. Instead of you sitting there listening to hold music for hours, their system does it. When an actual IRS representative picks up, it calls you and connects you immediately. Regarding getting through faster - no, it doesn't skip the line or get priority. The benefit is that you don't have to waste your time actively waiting on hold. You can go about your day, and your phone only rings when there's actually an agent ready to talk. For me, it took about 1.5 hours from when I started the process to when I got connected, but I was able to do other things during that time instead of being stuck on the phone.

I hadn't even considered the self-employment tax angle. Does that apply even if the farm is more of a side business to our regular jobs? And is there a minimum profit threshold before self-employment taxes kick in?

Yes, self-employment tax applies even if the farm is a side business. The IRS doesn't distinguish between main and side businesses for SE tax purposes. If you make a profit from self-employment activities, you'll generally owe SE tax. There is a small minimum threshold - you don't owe self-employment tax if your net earnings from self-employment are less than $400 for the year. But once you cross that very low threshold, the 15.3% tax applies to your farm profits. This catches many small farm operators by surprise, especially when they've been focusing on income tax rules and deductions.

What kind of records did they specifically ask for during your audit? I keep receipts but not much else.

They wanted to see everything that proved I was running a legitimate business operation rather than just a hobby. Beyond receipts, they asked for: business bank account records (separate from personal), documentation of time spent on farm activities, evidence of marketing efforts (flyers, website, social media posts), records of any agricultural education or training I'd pursued, and proof that I was actively trying to improve profitability (like soil tests, equipment upgrades, changes in crop selection). They also wanted to see my business plan and any correspondence with agricultural extension services. The auditor specifically said that simply having receipts isn't enough - they need to see that you're operating with a genuine profit motive and treating it like a real business.

This is such helpful information! I'm just getting started with understanding farm taxes myself. One thing I'm curious about - when you mention keeping detailed records to show "genuine profit motive," what's the best way to document that intent? Is it enough to keep a simple journal of farm activities, or do you need something more formal like a written business plan? I want to make sure I'm setting myself up correctly from the beginning rather than scrambling to create documentation later if questions arise.