1040 Schedule J | Income Averaging for Farmers and
Fishermen – 2019 Tax Year Checklist
Schedule J allows farmers and fishermen to reduce their tax burden by averaging current-year farm or fishing income over three base years. This election can lower tax liability when income spikes in a single tax year.
Who Can Use Schedule J
You qualify for income averaging if you earned taxable income from farming or fishing during the
2019 tax year. The Internal Revenue Service does not require you to have farmed or fished during the three base years of 2016, 2017, and 2018.
Income averaging is an option that is available to you regardless of whether you initiated your farming or fishing business in 2019. Nonfarming income does not disqualify you from using
Schedule J, but only farm or fishing income qualifies for the averaging calculation.
Individuals can use this form, but partnerships, corporations, estates, and trusts cannot.
Nonresident aliens can use Schedule J if they have eligible farming income or fishing income.
Nonresident aliens must file Schedule J with Form 1040-NR and report the resulting tax on line
42 of that form. The form attaches to Form 1040, Form 1040-SR, or Form 1040-NR and applies only to individuals engaged in farming or fishing businesses.
Defining Farm and Fishing Income
Farming business income includes revenue from cultivating land, raising or harvesting crops, operating nurseries or sod farms, and managing livestock. Lease arrangements qualify when payments are based on a share of production rather than fixed amounts and when a written agreement exists before the tenant begins significant farming activities.
Fishing income includes revenue from catching, taking, or harvesting marine life and related operations at sea. Compensation as a crew member on a fishing boat qualifies when payment is based on a share of the catch rather than a fixed wage.
Elected farm income also includes gains or losses from selling property regularly used in your farming or fishing business for a substantial period. Sales must occur within a reasonable time
after you stop farming or fishing, and the Internal Revenue Code treats sales within one year of cessation as timely.
How to Complete Schedule J for Income Averaging (2019)
Step 1: Verify Your Eligibility
Confirm you had net farm or fishing income for the current tax year of 2019. The Internal
Revenue Service does not require you to have been in the business of farming or fishing during any of the base years.
Step 2: Gather Required Tax Documents
Collect Schedule F or Schedule C for the current year, plus prior-year returns for the three base years. Obtain all supporting documents, including Form 1099-NEC, Form 1099-MISC, Schedule
K-1, and records of all crop sales or fishing revenue.
Step 3: Calculate Elected Farm Income Allocation
Enter your elected farm income on line 2a of Schedule J, which represents the amount of your
2019 taxable income from farming or fishing that you elect to average. The form divides this amount by 3.0 on line 6, allocating one-third of your elected farm income to each of the three base years.
Step 4: Determine Tax Using Averaging Method
Complete all lines 1 through 23 on Schedule J to calculate your tax liability using income averaging. Lines 2 through 6 set up the elected farm income and first base year calculation, while lines 7 through 16 handle the other two base years using the appropriate tax rates for
2016, 2017, and 2018.
Lines 17 through 23 combine the results to determine your final tax liability using the income averaging method. Each base year section requires you to figure the tax using the tax rates that applied in that specific year.
Step 5: Compare Tax Liability
Calculate regular tax on full current-year income using standard Form 1040 procedures, then compare to the tax computed using the Schedule J averaged amount from line 23. Use
Schedule J only if it results in a lower tax, as the form includes a caution noting that your tax may be less using standard calculation methods.
Step 6: Complete All Schedule J Lines
Fill lines 1 through 23, including line 2a for elected farm income, lines 2b and 2c if applicable for capital gains, and line 6 for one-third of elected farm income. Ensure line 23 shows your final tax using the income averaging election, and complete all base year calculations for 2016, 2017, and 2018.
Step 7: Attach Schedule J to Form 1040
Attach Schedule J with attachment sequence no. 20 to your completed Form 1040, Form
1040-SR, or Form 1040-NR. For paper filing, use a paper clip to attach schedules in sequence number order, and for electronic filing, the schedule transmits electronically with your return.
Step 8: Include Schedule F or Schedule C
Attach Schedule F if you report farm income or Schedule C if you report fishing or other self-employment farm income to your return as required by the 2019 Form 1040 instructions.
These schedules support the farm or fishing income figures used on Schedule J and provide documentation for your elected farm income amount.
Step 9: Declare Income Averaging Election on Form 1040
Report the Schedule J tax liability from line 23 on Form 1040 or Form 1040-SR, line 12a.
Nonresident aliens filing Form 1040-NR report it on Form 1040-NR, line 42, and you should not report standard tax if Schedule J applies.
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Step 10: Sign, Date, and File
Sign and date Form 1040 in the presence of both spouses if filing jointly, and include all required schedules and attachments. Mail the complete return to the Internal Revenue Service using the address listed on the 2019 Form 1040 "Where to File" page for your filing status and state, or file electronically.
Capital Gains and Special Considerations
If your elected farm income includes net capital gain, you must complete lines 2b and 2c of
Schedule J. Line 2b requires the portion of your elected farm income treated as net capital gain, which cannot exceed your total net capital gain or the net capital gain from your farming or fishing business.
Line 2c captures any unrecaptured section 1250 gain attributable to your farm or fishing activities. You must use Schedule D tax worksheets when calculating tax on base years if your elected farm income includes capital gains, and the IRS instructions provide specific worksheets for 2016, 2017, and 2018 tax calculations.
Form Limitations and Updates
Schedule J is available only to individuals, and partnerships, corporations, estates, and trusts cannot use it. No sections of Schedule J were added, removed, or redesigned for 2019, and the form maintains the prior structure and methodology for income averaging.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
