J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

22.6 Income Averaging for Farmers and Fishermen

A farmer or fisherman may elect to average 2012 farm or fishing income over three years on Schedule J of Form 1040. On Schedule J, one-third of elected farm or fishing income is allocated to each of 2008, 2009, and 2010. The tax for 2011 equals the tax liability figured without elected farm or fishing income plus increases in tax liability for the three prior years by including allocated elected farm or fishing income. Income averaging is available only to individual farmers or fishermen and may not be elected by estates or trusts engaged in the farming or fishing business.

Elected farm or fishing income is taxable income attributable to a farming or fishing business. A farming business is generally any business that involves cultivating land or raising or harvesting agricultural or horticultural commodities. A fishing business is generally any business involving the actual or attempted catching, taking, or harvesting of fish. See the Schedule J instructions.

A previous election to average farm income may by revoked or the elected farm income may be changed by filing an amended return within the period of limitations for a refund claim (47.2).

AMT relief for averaging.

When computing AMT on Form 6251, regular tax liability is determined without regard to averaging. Since AMT liability is based on the excess of tentative AMT over regular tax, ignoring the reduction to the regular tax from averaging limits or eliminates the AMT.