When Average is Great

Uncle Sam offers a tax advantage to farmers and fishermen that no other taxpayers receive. When your income is very high compared to previous years, the tax laws allow you to assume that you were able to average all of your farm income over a four year period.

This can save you several thousand dollars of tax. For example, if you had zero income for 2005, 2006, 2007 and then had $300,000 of farm income in 2008, with out this income averaging, your tax bill for 2008 would be about $72,000. By income averaging, your tax bill for 2008 would fall to $42,000, or a savings of about $30,000.

You need to make sure that your tax preparer is aware of this in any year where your income is much higher than the last three years.