How do I document income from a farmers market on produce that we grow and sell there?

by James G. McGrory, CPA, and Stephanie K. Otake, CPA | May 31, 2018
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My husband and I rent a home on 2 acres that we farm. We are going to start selling produce at a farmers market in a few months, and want to document our income from it so that we can qualify for a loan to purchase the home we currently rent. The farmers market collects sales tax on the products we sell. How do I document the income so that it’s part of our family’s adjusted gross income for the year? Also, will we have to pay tax on this income?

For the farmers market to collect sales tax, it will most likely ask you to provide an accurate record of all your produce sales. You must keep adequate records of your sales and expenses, not only for the farmers market (because they are acting as your agent), but also for yourself.
 
Net income from farming is subject to federal, state, and local individual income tax.  
For federal tax return purposes, you are required to report the income you earn from the sale of your produce on Schedule F, Profit or Loss from Farming, of your Form 1040. Your sales at the farmers market are reported on Schedule F, line 1A: Sales of livestock and other resale items; while your expenses are listed in Part II, Farm Expenses. Your net farm profit or loss from Schedule F, Line 34, will be included on Form 1040, page 1, line 18. In turn, your net farm profit or loss will be included in calculating your federal adjusted gross income.

Additionally, farming income is subject to federal self-employment tax, and is reportable on Form 1040, Schedule SE. You can find all the necessary tax forms on the IRS's website.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: James G. McGrory, CPA, and Stephanie K. Otake, CPA, are with Drucker & Scaccetti in Philadelphia.

Disclaimer
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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