FINPACK uses IRS Schedule F data in two analysis tools – the Schedule F type Tax Form and the Schedule F Cash to Accrual tool. Several items on the Schedule F tax form have both total and taxable entries. Because of this, questions arise about which Schedule F entries are used in the different FINPACK analysis tools. The FINPACK Team has created this fact sheet on the topic. Today’s post focuses on Schedule F income utilized in the Schedule F Cash to Accrual tool. This FINPACK tool takes cash income from the Schedule F, along with beginning and ending balance sheets, to arrive at accrual adjusted income for the year.
Schedule F Cash to Accrual
The Schedule F Cash to Accrual tool in FINPACK uses the Schedule F tax form to generate its accrual adjusted income statement. The cash portion of the income statement is built form the Schedule F entries. In general, the total entries are used rather than the taxable entries in order to capture the total cash income for the year. Examples of this include:
- Line 1 – Sale of livestock and other resale items: FINPACK uses Line 1a to capture the gross sale of feeder livestock and other resale items. Because FINPACK captures inventory change from the balance sheets, Line 1b is not used. Instead, the actual cash expenditure for resale items is entered in Schedule F Cash to Accrual data entry.
- Line 3 – Cooperative distributions: Here FINPACK uses the taxable amount on Line 3b. This exception to the rule results from grain sales being reported on Form 1099-PATR. Some tax preparers include the value of grain sales reported on the 1099-PATR for a producer on line 3a, exclude them on Line 3b, and instead report the grain sales on Line 2 (Sales of livestock, produce, grains, and other products you raised) instead. Using this method ensures income is not double-counted by FINPACK in the analysis. Note: if the difference between Line 3a and 3b is material and it is determined the income difference is not included elsewhere on the Schedule F, it should be added as “Other income (not on the Schedule F)” in data entry.
- Line 4 – Agricultural program payments: FINPACK uses Line 4a, total payments.
- Line 5 – Commodity Credit Corporation (CCC) loans reported under election: FINPACK always treats CCC loans as loans, no matter the elected tax treatment. Therefore, Line 5a is excluded. Crops under loan are not included as income until they are sold and the loan is repaid. At that time, the income will be reported on Line 1a, 2, or 3 of the Schedule F. See the FINPACK Knowledge Base fact sheet on Discrepancies Caused by CCC Loans in Schedule F Cash to Accrual for more detailed information on this topic.
- Line 6 – CRop insurance proceeds and federal crop disaster payments: FINPACK uses Line 6a, total crop insurance proceeds received. The taxable amount may be less if proceeds were deferred until the following year for tax purposes. Also, Line 6d, Amount deferred from previous year, is excluded because this was included as cash income the previous year.
Additional Income Information
Don’t forget, there may be other sources of income for the farm or ranch that are not found on directly the Schedule F tax form. The FINPACK Team has created a worksheet to help gather this information from the producer. This input form includes the income source and where to find the necessary information. For example, cull income, from the sale of breeding livestock, is found on Form 4797.
Schedule F debt coverage
Cash available for debt service begins with Net Farm Profit or Loss from the Schedule F tax form. Adjustments to arrive at the accurate cash income are made in Other non-taxable income. Specific details on these adjustments can be found in this FINPACK Knowledge Base fact sheet.