Schedule F (1040)
What does it mean
Schedule F refers to a particular section of a personal tax return where income derived from agricultural businesses are contained.
Why does it matter
Understanding a Schedule F is important to a banker because it will help you to identify all of the individual’s sources of income, and you will be readily able to locate how that income is reported on their tax returns. A Schedule F contains income derived from agricultural businesses, and even though the income statement contains industry specific jargon, it still follows the normal format of an income statement.
One extremely important thing to be aware of when reviewing a Schedule F is that most farmers use cash accounting for the tax returns. What this means is that farmers are allowed to manage their taxable income by deferring revenue or prepaying expenses. Due to this, a cash based accounting on a Schedule F on its own is essentially worthless to a banker. To truly analyze a Schedule F, you will also need a beginning and ending balance sheet to complete cash to accrual adjustments. This will allow the banker to see the true profitability of the farm operation
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