Income Averaging Provision Now Available Only To Farmers

I recall several years ago when I had
experienced an unusually high one-year taxable income, I was able to reduce my
Federal income tax liability by averaging my income over a five-year period'Is
the Income Averaging provision still available to taxpayers?

G.L., Indianapolis

I always enjoyed helping others take advantage of the old income averaging rule' I thought that it was an interesting way of easing the burden that befell taxpayers who were hit with a big year that was way out of sync with their normal income years'On the other hand, I'm not sure it was the most fair method of inflicting income tax on taxpayers since in effect you were given a tax break as a reward for earning a lot of money.

The climate nowadays is certainly the reverse of rewarding taxpayers for earning money, the more you earn, the more tax you pay, and there aren' t many ways to avoid that'In fact, in today's tax world, the more you earn, the less you get to take advantage of deductions that are available for other taxpayers who don't earn as much money'There are many ways in which taxpayers are penalized for earning a decent living.

Anyway, the answer to your question is that the 1986 Tax Reform Act did away with income averaging, which is why unless you happen to be a farmer you won't be able to take advantage of this interesting provision any more.

Beginning in 1998, income averaging was reborn in the form of a benefit to farmers'Thanks to a provision in the Taxpayer Relief Act of 1997, farmers who experience large swings in their income can take advantage of a three-year averaging technique designed to smooth out economic disparities that may occur from year to year'In other words, farmers have excellent lobbyists in Washington.


How can I get a copy of my 1996,1997,and 1998
tax return?

J.C., Indianapolis

You can call the IRS at 1-800-829-1040'You can request a transcript of prior year returns, or a copy of the actual return'The transcript is free and doesn't take nearly as long as the copies, which cost a nominal fee'The transcript is a computer printout listing the line numbers of your tax return on which you entered information, and the information that was entered on those lines'If all you need is the numbers from a prior year, the transcript will be sufficient.

If you need an actual copy of the real pages of the tax return that you filed with the IRS, be sure to make yourself very clear when you make this request'I tried to request a copy of a tax return when I called the IRS number listed above, and the person with whom I spoke spent a lot of time trying to persuade me that a transcript was really what I wanted'After I thought I had made it clear that I wanted the real copy of my return, a week or so went by and a transcript showed up in my mailbox.

If you want a copy of a return that you filed, make sure that you explain to the person who answers the telephone that you know what a transcript is and you are certain that you don't want that document.

Last minute tax tips:

For those of you looking for a final opportunity to limit your 1999 taxes before the clock counts down on New Year's Eve, here are a few quick tips that might be useful:

  • Make tax-deductible payments before the end of the
    year'You can pay your January mortgage in December, and you can pay your
    fourth quarter Indiana estimated tax payment in December'Those payments will
    result in 1999 deductions on your tax return if you itemize your deductions.
  • Contributions, both cash and non-cash (such as
    clothing, books, and household goods), can be made in the last week of the
    year and they will reduce your 1999 income tax.
  • Don't forget, however, that checks written prior to January 1st have to be placed in the mail before January 1st in order to count as 1999 deductions'You can't just write a pile of checks and date them December 31, then hold off mailing them until mid-January.

copyright © 2000 Gail Perry - Fun with

You may like these other stories...

Did you know that the tax code allows you to claim tax deductions for household damage caused by thefts, vandalism, fires, floods, hurricanes, and others kinds of casualties? But the law imposes several restrictions.Relief...
Inversions: Loophole Is the ProblemJacob J. Lew, the U.S. Treasury Secretary, published an opinion piece in the Wall Street Journal that "the system has become full of inefficiencies and special-interest loopholes. That...
School tax breaks get House support as Democrats objectRichard Rubin of Bloomberg reported that the House of Representatives on Thursday voted to expand and simplify tax breaks for education as Republicans continue to pass...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.