income averaging

income averaging

A technique for calculating personal income taxes in which an individual with large variations in annual taxable income is allowed to average income over a specified period. Income averaging was eliminated by 1986 tax reform.

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Income Averaging

A former method of spreading out one's tax liability by averaging one's income over 10 years. Income averaging was particularly beneficial to farmers and ranchers, as well as members of other professions with significant variations in annual income. Income averaging was eliminated in President Reagan's Tax Reform Act of 1986.

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income averaging

A tax tool formerly given to all taxpayers and now available for just a few classes,such as farmers and fishermen.It allows taxpayers to average their income over 3 years and pay taxes on the average income,rather than no taxes one year and then high taxes at a high bracket in the next year,for example.(Calculated on Schedule J of IRS Form 1040.)

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Income Averaging

A method by which farmers may sometimes reduce tax liability by computing their income tax as if their current farm income had been spread evenly over the preceding three years. The term also is sometimes used when referring to the 10-year averaging method, which is used for computing the tax on a lump-sum distribution from a qualified employer plan. See "10-Year Averaging."