Farm Income and Expense - Labor Hired
When reporting farm income and expenses, hired labor costs are deductible as a business expense if they are ordinary and necessary for your farming operation. These expenses are reported on Schedule F (Form 1040), Profit or Loss From Farming.
Key Points for Hired Labor Expenses
- Deductible Expenses: Wages paid to employees for farm work, including hiring farmhands, mechanics, or other laborers, are deductible as a business expense.
- Reporting Location: Enter total wages paid to employees on Line 12 of Schedule F (Form 1040).
- Documentation Required: Maintain records such as pay stubs, W-2 forms, or time sheets to substantiate the expenses.
- Self-Employment Tax: If you are the sole operator and hire labor, ensure you are correctly classifying workers as employees or independent contractors. Misclassification can lead to penalties.
- IRS Guidance: Refer to Publication 225, Farmer’s Tax Guide, for detailed guidance on farm expenses, including labor costs.
Important Considerations
- Only expenses directly related to farming operations are deductible.
- Expenses must be ordinary and necessary under IRS rules (IRC §162).
- Do not deduct personal expenses disguised as business labor costs.
Source:
Farmer’s Tax Guide (Publication 225)
Instructions for Form 1040-SS
Disclaimer: Always verify details with the official IRS forms and instructions or consult with a tax professional. OLT (Online Taxes) provides guidance based on retrieved IRS resources but does not offer legal or tax advice.