2017 Instructions for Schedule J | Income Average for
Farmers and Fishermen Checklist
Schedule J permits eligible farmers and fishermen to average net farm or fishing income over three years, reducing tax on significant income spikes. This form applies only to individuals with farm or fishing business income.
Eligibility Requirements
You qualify to use Schedule J if you are a U.S. citizen, resident alien, or nonresident alien with net farm or fishing income reported on Schedule F or Schedule C. Nonresident aliens may use
Schedule J by attaching it to Form 1040-NR.
The farming business includes cultivating land or raising or harvesting any agricultural or horticultural commodity. A fishing business involves the catching, taking, or harvesting of fish intended to enter commerce through sale, barter, or trade.
Partners in partnerships engaged in farming or fishing businesses qualify as individuals engaged in such businesses for purposes of Schedule J. Shareholders of S corporations engaged in farming or fishing businesses also meet the eligibility criteria.
To elect income averaging for 2017, it is not necessary to have been involved in a farming or fishing business during any of the three prior base years. Sole proprietors of farming or fishing businesses may elect income averaging under the same rules.
Required Documentation and Forms
Collect net farm or fishing income figures for the current year (2017) and the three preceding tax
years (2014, 2015, and 2016) to complete the Schedule J calculations. You must retain copies of prior-year returns showing net farm or fishing income.
The 2017 instructions do not require separate schedules beyond Schedule F or Schedule C.
Gather documentation for Form 4797 if you sold property regularly used in your farming or fishing business.
Review your prior-year tax returns to identify any farm loss carryback provisions that could distort the averaging calculation. Confirm that the prior three years’ net income figures exclude these adjustments.
Step-by-Step Schedule J Income Averaging Calculation
(2017)
Step 1: Enter Current Year Taxable Income
Enter your 2017 taxable income from Form 1040, line 43, or Form 1040-NR, line 41, in line 1 of
Schedule J. This represents your taxable income after subtracting exemptions from line 42.
Step 2: Determine Elected Farm Income
Line 2a requires your elected farm income, which is the amount of your taxable income from farming or fishing that you elect to include for averaging purposes. You need not include all of your taxable income from farming or fishing on line 2a.
Step 3: Calculate Tax on Remaining Income
Calculate the tax on the amount from line 3 using the 2017 Tax Table, Tax Computation
Worksheet, or Qualified Dividends and Capital Gain Tax Worksheet. Apply the 2017 tax rate tables for single, married filing jointly, married filing separately, or head of household filers.
Step 4: Complete Base Year Income Lines
Lines 5, 9, and 13 require taxable income figures from your 2014, 2015, and 2016 tax returns, respectively. If any of these amounts are zero or less, complete the applicable Taxable Income
Worksheet provided in the 2017 Schedule J instructions.
Divide the amount on line 2a by 3.0 and enter the result on line 6. Combine lines 5 and 6 to determine line 7.
Step 5: Figure Tax for Each Base Year
Figure the tax on the amount from line 7 using the 2014 tax rates provided in the instructions.
Repeat this process for 2015 and 2016 using the appropriate tax rate schedules for each year.
Lines 19 through 21 require you to enter the tax from your 2014, 2015, and 2016 returns as previously filed or as adjusted. Add lines 4, 8, 12, and 16 to arrive at line 17.
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Step 6: Calculate Final Tax Using Averaging
Line 17 represents your total tax using income averaging. Add lines 19 through 21 and enter the sum on line 22.
Subtract line 22 from line 18 to determine your final tax on line 23. This amount should be entered on Form 1040, line 44, or Form 1040-NR, line 42.
Filing Requirements and Procedures
Attach Schedule J to your Form 1040 or Form 1040-NR only if income averaging results in a lower tax than the regular calculation method. If the regular calculation produces a lower tax, report that tax on Form 1040, line 44, or Form 1040-NR, line 42, and do not file Schedule J.
The tax computed on Schedule J line 23 should be entered on Form 1040, line 44, or Form
1040-NR, line 42, when you elect to use income averaging. Sign and date both Form 1040 or
Form 1040-NR and Schedule J as required.
Keep a copy of your 2017 income tax return to use for income averaging in 2018, 2019, or
2020. Retain all supporting documentation for at least three years after April 18, 2018, or the date you file your 2017 tax return, if later.
Special Considerations for Base Year Calculations
Any net capital loss deduction on your 2014, 2015, or 2016 Schedule D, line 21, may require adjustment according to the instructions. If you had a net operating loss for any base year, enter the amount from Form 1045, Schedule A, line 25, as directed.
Review the 2017 Schedule J instructions for detailed guidance on completing the Taxable
Income Worksheets for years when your taxable income was zero or less. These worksheets prevent distortion in the averaging calculation.
Form Structure and Line References
No redesigns, line removals, or significant rewording of Schedule J lines are documented in the
2017 instructions relative to the prior version. The form structure and line references remain consistent with prior-year farming and fishing income averaging procedures.
Schedule J for 2017 consists of two pages with lines 1 through 23. Part I focuses on taxable income calculation, while Part II addresses tax computation using averages across the base years.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
