Schedule J 2013 Income Averaging for Farmers

2013 Instructions for Schedule J | Income Average for

Farmers and Fishermen Checklist

Schedule J allows farmers and fishermen to elect a multi-year income averaging method under

IRC Section 1301, which can reduce tax liability by spreading current-year farming or fishing business income over three prior taxable years. This form applies only to qualified individuals with farming or fishing as their principal business activity, and the election is not available to estates, trusts, or C corporations.

Eligibility Requirements for Income Averaging

You must file Schedule J as an individual to use the income averaging election under the

Internal Revenue Code. Sole proprietors operating a farming or fishing business qualify directly for this tax benefit.

Partners in partnerships engaged in farming or fishing can use income averaging by reporting their share of income on their individual tax return, and shareholders of S corporations engaged in farming or fishing also qualify by reporting their share on Form 1040.

The election remains unavailable to estates, trusts, C corporations, or to the partnership or S corporation entities themselves. Your principal business activity for the current tax year must be farming or fishing to qualify for this election.

Additionally, you must have net income from farming or fishing that you wish to average over the three preceding taxable years. To make this election, the Internal Revenue Service does not require that you have been involved in a farming or fishing business during any of the base years.

How to Complete Schedule J for the 2013 Tax Year

1. Step 1: Gather Required Documentation

   Collect copies of your current-year Schedule F or Schedule C before beginning the income averaging calculation. Documentation of net farm or fishing income for the three prior taxable years is also required.

   These documents provide the elected farm income figures that form the basis of your tax calculation. Review your records to ensure accurate reporting of all income, gains, losses, and deductions attributable to your farming or fishing business.

2. Step 2: Complete Lines 1 Through 6

   Enter your current taxable income from farming or fishing on line 2a using the exact figure from your Schedule F or Schedule C for tax year 2013. Lines 2b and 2c require additional entries if your elected farm income includes net capital gain or unrecaptured section 1250 gain.

   Calculate your average net farm or fishing income by adding the prior three years’ net income amounts and dividing the total by three. Line 6 shows this divided amount, which represents one-third of your elected farm income that will be allocated to each base year.

3. Step 3: Calculate Tax Using Base Years

   The 2013 Schedule J consists of 23 numbered lines across two pages without designated part numbers. You will calculate your tentative tax using the averaged income figure for each of the three base years on the designated lines.

   Lines 5 through 8 address the first base year, lines 9 through 12 address the second base year, and lines 13 through 16 address the third base year. Sum these results on line 17 to determine your total averaged tax liability under the income averaging method.

4. Step 4: Determine Your Tax Benefit

   Calculate the difference between your tax liability computed under the income averaging method and your tax liability computed without averaging. This difference represents your potential tax reduction from making the election.

   The tax imposed by Section 1 applies to your calculation, and you must use the appropriate tax rates for each of the three prior taxable years when computing the averaged amounts. Line 23 shows your final tax amount, which you will enter on Form 1040, line 44.

   Filing Your Tax Return

   Attach Schedule J along with other schedules and forms to your completed Form 1040 when you file your tax return. Schedules are generally assembled in sequence number order, and

   Schedule J carries Attachment Sequence No. 20.

   Sign and date Form 1040 as required by the Internal Revenue Service. Schedule J does not have a separate signature or date line because only Form 1040 requires your signature and date.

   Before mailing your tax return, verify that all entries on both Form 1040 and Schedule J are legible and complete. Confirm you have included all supporting documentation and schedules, then check the IRS where to file page for 1040 Schedule J 2013 to confirm the correct mailing address for your filing status and state of residence.

   Important Considerations for 2013

   Your elected farm income includes items from both farming and fishing businesses if you conduct both types of operations. The amount you elect to include as elected farm income cannot exceed your total taxable income for the current year.

   You do not have to include all of your taxable income from farming or fishing on line 2a, as including less than the entire amount may provide a tax advantage depending on how the elected amount affects your tax brackets. Calculate your tax both with and without Schedule J to determine which method produces the lower tax burden before filing your return.

   If your current-year income from farming or fishing is high and your taxable income for one or more of the three prior years was low, your tax liability may decrease. By utilizing unused tax brackets from previous years, the income averaging election enables you to compute taxes on current-year income.

   Qualified settlement income from Exxon Valdez litigation receives special treatment under the regulations, as taxpayers who received such payments may be treated as engaged in a fishing business for that taxable year. The 2013 instructions do not reference year-specific programs such as EIP, ACA, TCJA, ARPA, unemployment exclusion, or energy credits that would modify

   Schedule J availability for this tax year.

   If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.