Dear IRS – The 60s Called. They Want Their Tax Forms Back
Where Does Intellectual Property Go on my Schedule F?
To get a clue as to how much farming has changed over the decades, you need look no further than the Schedule F form – the IRS form that deals with farming. For the most part, it looks like it came straight out of the 1960s, (Though I’m not certain how old the Schedule F is.) There are only three line-items my parents wouldn’t have seen on theirs, numbers 12 Conservation expenses, 15 Employee benefit programs, and 32 Pensions and profit sharing plans. Other than those, the feed, fertilizer, freight view of farming prevails even on our tax documents.
Line 11 Chemicals, is one that reads pretty dated for a few reasons.
First off, going back to elementary-school science class, everything’s a chemical. It’s silly, trivial, nit-picking, but can we please just get that right. Not so much because it’s inaccurate, but mainly because it plays directly into number two.
Number two being “Chemical Free”. It’s a pretty common marketing term, most frequently wielded by fear-mongers to help promote distrust of common household products, and to promote sales of their own (ineffective) products.
Third, the phrase we’d use now is “Crop Protection Products”, which reflects our use of biological means of pest control, https://agriculture.basf.com/en/Crop-Protection/Biologicals.html as well as chemical means.
So, like many things, the story isn’t in the story. The story is in what’s NOT in the story, or in this case, what’s NOT on the form.
That story is told in the lines at the end of part II, line 32, where we can add our “Other expenses (specify)”. So looking at line 32 can give you a bit of an idea how farming has changed, and how farmers have changed as well.
Those eight lines account for 15% of our expenses, and I think these expenses are probably reflective of what other farmers and ranchers see and spend.
I have ours broken out as follows –
32a Copyrighted Materials
32b Conferences, Mtgs. and Ed.
32c Professional Svc.
32e Bank fees
32f Ag. Services
32g Office supplies
32h Meals and travel
I made up these categories, with our accountant’s approval. I’ve never asked how other farmers do it, but if my categories or expenses were way off the mark, I would have heard about it by now. We’ve had about half a dozen accountants do our taxes over the years, and they’ve all stated that our categories are fine, and that our numbers are within reason, so we’re just going to go with that.
32a Copyrighted materials is a weird one. I use it for books, magazines, and most of our software. Our software expenses aren’t big at all, just some cattle management software mainly. Financial management software. And anything related to our webpages. Domain names, web hosting, themes, plug-ins. Our farm is small enough that I can still keep a lot of our records in Excel, but bigger operations, particularly cropping operations, use a lot of expensive software, and some of this comes into contention as seed companies and implement manufacturers have copyright protections, and even own some of our data, though this is way over my head, and not directly relevant to our little operation. But as farmers, the implement manufacturers, and the seed companies vie over the ownership of data, this line item might become more complicated for some. (Here’s a pretty good take on the topic. – http://www.aglaw.us/janzenaglaw/2018/9/5/common-contract-mistakes-made-by-ag-tech-companies )
And as cattle owners and breed associations implement and incorporate DNA testing, it’s not much of stretch to see where battles over the ownership of data make it to the courts.
Add a weather subscription service, a couple of proprietary market reports and you can see where a line item that was originally created to track magazine subscriptions is evolving into an intellectual property category, that applies to a lot of areas that you wouldn’t expect.
Conferences, Mtgs. and Ed. This is another area where we spend a fair amount of money, and the IRS provides no line. I’ve recently updated this line item to Professional Development, and I imagine farmers are all over the map with this one. The costs reflected in this line item range from $15.00 for local workshops that run for a couple of hours, to the hundreds of dollars spent attending major conferences and grazing schools.
Professional Services – This is where I throw my business professionals – the accountant and the attorney who helps with our transition planning – anybody who provides us information on how to run the business side of the house.
Ag Services – I’ve incorporated a different things over the years into this line, but right now it just includes our trash hauling, our crop advisors and testing services. I guess I could have put a bit more thought into this one. but it works for now, and hopefully I’m not hurting anyone’s feelings.
Office Supplies – This is line item I’m sure my parents would never have broke out on a separate line, because, Damn-it, when I was a kid, we couldn’t even afford erasers, so we didn’t make any mistakes. (If you think I’m making that one up, you’d be wrong. It’s almost an exact quote from my Dad.)
But anyway, almost everyone I’ve ever discussed this with says not to bother depreciating out items under $1000.00 in value, so electronics end up in this pile. Laptops, tablets, a new monitor – for tax purposes, they’re expendable, throw-away items.
Meals and Travel – I track business meals and travel as separate line items in our accounting software, so they end up as separate line items on our tax return. We always seem to rack up a few miles for things that aren’t professional development, like trips to look at equipment, and last year I racked up quite a few miles bull shopping.
Donations and Bank Fees show up in there as well, but I think they’re fairly straight-forward.
Bank fees are non-interest costs to financial institutions, like card fees and loan reconfiguration costs. Simple enough.
What’s not quite so simple are our donations. We run our church and household related donations through our person accounts – that’s relatively straight-forward, but farm related donations include youth livestock programs, as well as feed, hay, and fencing supply donations (fairly typical after regional disasters), as well as time and equipment used in ground maintenance for non-profits.
RFID Ear-tag scanners, feed, forage and soil testing services, nitrogen tanks for semen storage. Just a few farm-related expenses that my parents wouldn’t have readily recognized in the 60s, that I’m pretty sure I’d have a hard time operating without today.