IRS Schedule F and farm deductions for a small US cut flower operation

What to take away

Who files IRS Schedule F and who does not

Schedule F (Form 1040) reports profit or loss from farming. The IRS describes it as the schedule for taxpayers who operate a farm for profit, whether as a sole proprietor or through a partnership or corporation that files its own return. See About Schedule F (Form 1040) for the filing rules.

A cut flower operation that grows plants in a field, high tunnel, or greenhouse and sells the stems is farming. The test is profit motive, not size.

A half acre of zinnias sold to two florists is a farm. A backyard bed cut for your own table is not. If you sell a few extra bouquets with no plan to make money, the activity may be a hobby, and hobby expenses are handled differently.

Section 183 of the Internal Revenue Code is the rule behind that call. It presumes a profit motive when the activity shows a profit in three of the last five years, counting the current one.

Several business forms use Schedule F. Sole proprietors attach it to Form 1040. Partnerships and S corporations file it as part of their entity return. A single member LLC is disregarded by default and reports on Schedule F through the owner's 1040.

You do not file Schedule F if you only buy flowers wholesale and resell them. That is retail or resale activity, reported on Schedule C. The line is growing versus trading.

A grower who buys in filler to complete a wedding order still files Schedule F for the grown portion and needs clean records for the resale portion.

Nursery and greenhouse operations that sell plants rather than cut stems sit in a gray zone. The IRS treats them as farming when the plants are grown rather than merely held for resale.

A flower farm that also sells plugs and starts should say so on the return and keep the two revenue streams visible.

Farm income lines on Schedule F

Schedule F reports gross income in a few buckets, and most cut flower money lands in one of them. The main line is sales of products you raised. That covers market bunches, florist accounts, and subscription boxes, because in each case you grew the stems.

Market sales are the simplest. Cash and card receipts from a Saturday market go on the sales line at gross, before booth fees. Booth fees are a separate deduction, not a reduction of income.

Florist accounts are wholesale sales on terms. You invoice, you wait, you get paid. Report the invoice when you use the cash method, which most small farms do. If you use accrual accounting, report income when you bill, not when the check clears.

Subscription boxes need care because money arrives before flowers do. Under the cash method, a deposit for a season of bouquets is income when received, unless you treat it as an advance payment and follow the rules for deferring it.

Many growers simply report the cash in the year it lands and match expenses in the same year.

Other income lines matter too. Crop insurance proceeds, cooperative distributions, and government payments each have their own place on the form. USDA Farm Service Agency disaster payments and Specialty Crop Block Grant funds passed through a state department of agriculture are reported as farm income, not as gifts.

Keep the split between grown and bought-in product visible in your books. A cut flower growing guide that tags each sale by source keeps that split easy at filing time and defensible in an audit.

Deductible costs from seed and plugs to cooler repair

Ordinary and necessary costs of growing and selling cut flowers are deductible. The IRS business tax center is the starting point for what counts as an ordinary business expense. For a flower farm, the list runs the length of the season.

Some costs need a closer look. Cooler repair is deductible as a repair when it keeps the unit working as it did before. A compressor replacement that extends the cooler's life is a capital improvement, and it is depreciated instead. The same split applies to greenhouse glazing and tunnel plastic.

Most cut flower costs land on a short list of Schedule F lines. Line numbers track the current form, so confirm them against the year's instructions before you file.

Seed and plug spend on a typical small cut flower farm runs $1,000 to $2,500 a season. A cooler repair visit runs $300 to $900. A season of market booth fees runs $400 to $1,500. These are typical ranges, not quotes: your seed bill tracks the number of varieties and your repair bill tracks the failed part.

Labor is deductible when paid to workers, and it brings payroll obligations. Wages, employer payroll taxes, and workers compensation premiums are farm expenses. Payments to contract harvest crews are deductible too, and you should collect a Form W-9 from each crew so the payment is documented.

Mileage and vehicle costs are deductible by one method or the other, not both. Track business miles for delivery routes, market runs, and supply pickups. Personal driving does not count. A dedicated delivery van makes the split easy.

Education and marketing are deductible when they relate to the farm. AIFD and Society of American Florists memberships, design classes, website hosting, and photography for the farm shop all qualify. So does the cost of a booth at a regional trade event.

Land and property taxes on farm land, farm insurance, and interest on farm loans are deductible on the appropriate lines. A cut flower postharvest checklist keeps these categories current to the filing deadline.

Depreciation on coolers, tunnels, and delivery vehicles

Big-ticket items are not expensed in the year you buy them. They are capitalized and depreciated over a set recovery period, unless you elect a faster write-off. The recovery period depends on what the asset is and how it is used.

A walk-in cooler is generally seven-year property. A high tunnel or greenhouse structure is often treated as a land improvement or a single purpose agricultural structure, with longer recovery periods. A delivery vehicle is five-year property when used only for the farm.

Section 179 and bonus depreciation let you write off much of the cost in year one, subject to limits and to whether the farm has enough taxable income. Section 179 cannot create a loss on a farm in most cases, so a farm with thin profit may prefer regular depreciation.

For tax year 2025, Section 179 allows up to $1,250,000, and the limit phases out once qualifying purchases pass $3,130,000. Bonus depreciation is 100 percent for qualifying property acquired after January 19, 2025, and 40 percent for property acquired before January 20, 2025.

A worked example shows how the pieces fit.

A grower buys a used refrigerated cooler for $9,000, a 30 by 96 foot high tunnel for $12,000, and a used cargo van for $18,000. She elects Section 179 on the van and takes regular depreciation on the cooler and tunnel.

First-year depreciation on the cooler is roughly $1,285 under the seven-year schedule. The tunnel is depreciated over its longer class life. The van is written off under Section 179, subject to her taxable income; if the van weighs under 6,000 pounds gross vehicle weight, the vehicle depreciation caps still apply.

Depreciation follows the asset, not the year of the receipt. Keep the purchase date, cost, and placed-in-service date for every item over a few hundred dollars. A cut flower postharvest handling routine should keep a fixed asset list updated the day new equipment arrives on the farm.

How IRS Publication 225 treats farm expenses and inventory

Publication 225 (2025), Farmer's Tax Guide is the IRS manual for farm returns. It walks through income, expenses, depreciation, and the special rules that apply only to farming. Read it before you read the form.

The cash method is the default for most small farms. You report income when received and deduct expenses when paid. That matches how a cut flower operation actually moves money, which is why so many growers use it.

Inventory is the part that trips people up. A farm that raises and sells products can often use the cash method and treat growing crops as inventory only at year end, or use a simplified method.

Publication 225 explains the options, including the farm price inventory method and the rules for when you must capitalize certain costs.

Prepaid expenses have limits. You cannot buy three years of fertilizer in December and deduct it all if the benefit belongs to later years. The deduction is limited to the portion that applies to the current year.

Farm losses get attention. A farm that shows losses year after year may be examined for profit motive. Keep a simple business plan, a separate farm bank account, and records that show you are trying to make money. That is the defense.

The Instructions for Schedule F (2025) give the line-by-line detail, including which expenses go on which line and what to attach. Publication 225 gives the reasoning. Use both.

Keeping records that survive an audit of a cut flower operation

Records are the difference between a deduction and a disallowed deduction. The IRS does not require a particular software, but it does require records that support every number on the return. For a flower farm, that means receipts, invoices, and a bank account that only holds farm money.

Separate accounts are the single highest-value habit. One checking account for the farm, one card for farm purchases, and no personal spending from either. When a personal expense slips through, note it and treat it as a draw.

Mileage logs should be contemporaneous. A notebook in the van beats a reconstruction in April. Record date, destination, purpose, and miles for each farm trip.

Inventory and sales records should tie out. If you sell 400 bunches at market and 900 stems to a florist, the numbers should reconcile to your deposit totals. Gaps invite questions.

Keep records for at least three years after the return is filed, and longer for assets. Depreciation schedules live for the life of the asset plus the audit window, so a cooler bought in 2026 stays on the books for years.

Most farm paperwork problems start before an audit, when a receipt is lost or a sale is recorded in the wrong month. A cut flower propagation guide review each winter catches those gaps while they are small.

Getting an EIN and choosing a tax year for a new flower farm

The IRS explains how to get an employer identification number online, by fax, or by mail, and it is free from the agency. You do not need an EIN to file Schedule F as a sole proprietor using your Social Security number, but most growers get one anyway.

An EIN lets you open a business bank account, hire workers, and file payroll returns without exposing your personal number on every form. Wholesale florists and market managers often ask for one. Apply once and keep the letter in your permanent file.

The tax year for most sole proprietors is the calendar year. That matches the growing season and the Form 1040 deadline. A corporation or partnership can choose a fiscal year, but a flower farm with a spring-to-fall cycle rarely benefits from one.

Accounting method and tax year go together. Cash method plus calendar year is the standard setup for a small cut flower farm, and it is the easiest to keep straight.

If you form an LLC or corporation, the entity type changes what you file but not the underlying farm rules. A single member LLC still reports on Schedule F through the owner's return. An S corporation files its own return and issues a Schedule K-1.

Before you buy a single plug, decide the entity, get the EIN, open the bank account, and pick the tax year. Those four choices shape every return you file afterward.

Where Schedule F filers commonly go wrong

Claiming the full cost of a capital item as a repair is the first. A new cooler is not a repair. A compressor that restores function might be. Get the distinction right and document it.

Ignoring payroll rules is the second. Paying a crew in cash without payroll taxes or a W-9 creates liability that dwarfs the tax saved. Use a payroll service if the crew is regular.

Forgetting state obligations is the third. State departments of agriculture, sales tax on retail bouquets, and local business licenses are separate from the federal return. A grower who nails Schedule F can still be out of step with the state.

Pricing built on guesses is a quieter mistake. A farm that never works through cut flower succession planting ends up with thin margins.

Common questions