TurboTax / Tax Calculators & Tips / All Tax Guides / IRS Tax Forms / What is Schedule J: Income Averaging for Farmers and Fishermen

What is Schedule J: Income Averaging for Farmers and Fishermen

Updated for Tax Year 2015


OVERVIEW

Income averaging for farmers and fishermen provides a way to balance an income tax burden over several years, reducing the effects of both lean and bounty years. Schedule J is the Internal Revenue Service form used when you want to average your fishing or farming income.


When income averaging is beneficial

You may wish to consider income averaging if your income from fishing and farming activities for the current tax year is substantially higher than your income from any source over the previous three years. Electing to use Schedule J to average your income allows you to balance your current tax bracket with the brackets from previous years, so you’re not taxed at a significantly higher rate in the current year. Income from the three previous years, referred to as the base years, doesn’t have to originate from farming or fishing activity.

what is a schedule j tax form

Farming businesses that qualify for income averaging

The IRS defines a farming business as one involved in the trade of cultivating land or the raising or harvesting of any agricultural or horticultural commodity. This excludes buying and reselling plants or animals raised by someone else, or the harvesting under contract of agricultural or horticultural commodities grown by someone else. Leasing land to a tenant engaged in farming is allowed for income averaging, as long as lease payments are based on a share of the tenant's production, rather than a fixed fee. This agreement also must be in place before the tenant starts farming operations.

Fishing businesses and income averaging

  • Fishing business refers to the catching, taking or harvesting of finfish, mollusks, crustaceans, marine animal and plant life, except marine mammals and birds.
  • Crew members on commercial fishing vessels qualify only if their income is based on a share of the catch.
  • If you own a fishing boat and lease it, you are eligible for income averaging only if lease arrangements are made as a share of the catch.
  • If you are involved in settlement from Exxon Valdez litigation as a plaintiff or beneficiary, you may be considered eligible for fishing income averaging.

Using elected farm income with Schedule J

You're not required to use all of your taxable farm and fishing income from the current year for income averaging, and it may be better to use only a portion. Whatever portion of your income you include, it’s called elected farm income on Schedule J, and it can include gain or loss from the sale of property and assets used in your business. It cannot exceed the taxable income reported on line 43 of your Form 1040. Schedule J and its instructions guide you through calculation of tax on your current year elected farm income as well as the three base years to calculate your averaged income.

Remember, you don’t have to do any calculations on your own when you use TurboTax to prepare and file your taxes. Simply answer the questions we provide, and we’ll make sure your answers go on the appropriate tax forms.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • Filing Deadline: IRS filing deadline for tax year 2015 is April 18, 2016 (except for residents of Massachusetts or Maine, where the IRS filing deadline for tax year 2015 is April 19, 2016).
  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected 3/18/16. Special discount offers may not be valid for mobile in-app purchases.
  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for efiling state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected 3/18/16. Prices subject to change without notice.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with efile and direct deposit; tax refund timeframes will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except the TurboTax Home & Business/QuickBooks Self-Employed bundle offers.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice service is available via phone for your toughest tax questions; fees may apply. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2014 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.