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?
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
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
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.