Unlock Tax Savings with Schedule J
An interactive guide to income averaging for individuals with income from farming and fishing.
The Challenge: Unpredictable Income
Income from farming and fishing can vary dramatically year to year. A highly profitable year can push you into a much higher tax bracket, resulting in a disproportionately large tax bill.
The Solution: The Schedule J Calculator
See the power of Schedule J for yourself. Enter your hypothetical income figures below to see how income averaging could lower your tax bill. This calculator uses 2021-2024 tax rates for a 'Single' filer for demonstration purposes.
Tax Without Averaging
$0
Total Potential Savings
$0
Tax With Schedule J Averaging
$0
Key Benefits of Using Schedule J
Income averaging provides more than just tax savings; it offers significant financial flexibility.
Strategic Flexibility
You choose the exact amount of farm income to average. This allows you to fine-tune your tax outcome to maximize savings across all four years.
Capital Gains are Eligible
Sold business assets like machinery or vessels? The resulting capital gains can be included in your averaged income, preventing a large one-time tax hit.
Broad Eligibility
You don't need to have been in business during the prior three years. If you had low income for any reason, you can still leverage those years to lower your current tax bill.
The 5-Step Process
Here’s a simplified breakdown of how the tax calculation works when you file Schedule J.
Isolate & Elect Income
Determine your total income from farming/fishing and decide how much you want to average (your "elected farm income").
Calculate Current Year Tax
Your current year's tax is calculated on your total income MINUS the amount you elected to average.
Divide & Allocate
Divide your elected income by three. Add one-third to the taxable income of each of the three previous years.
Recalculate Prior Year Taxes
Figure out the tax for each of the three prior years based on their new, higher taxable incomes.
Combine for Total Tax
Your final tax bill is the sum of the new current year tax plus the additional tax calculated for the three prior years.