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Department of the Treasury

Internal Revenue Service

2006 Instructions for Schedule J

Use Schedule J (Form 1040) to elect to figure your 2006 income tax by averaging, over the

Income

previous 3 years (base years), all or part of your 2006 taxable income from your trade or

business of farming or fishing. This election may give you a lower tax if your 2006 income

Averaging for

from farming or fishing is high and your taxable income for one or more of the 3 prior years

was low.

In order to qualify for this election, you are not required to have been in the business of

Farmers and

farming or fishing during any of the base years.

You may elect to average farming or fishing income even if your filing status was not the

Fishermen

same in the election year and the base years.

This election does not apply when figuring your alternative minimum tax on Form 6251.

Also, you do not have to recompute, because of this election, the tax liability of any minor

child who was required to use your tax rates in the prior years.

ment entered into before the tenant begins

Additional Information

General Instructions

significant activities on the land.

See Pub. 225 and Regulations section

1.1301-1 for more information.

Prior Year Tax Returns

A farming business does not include:

•

You may need copies of your original or

Contract harvesting of an agricultural

Specific Instructions

amended income tax returns for 2003,

or horticultural commodity grown or raised

2004, and 2005 to figure your tax on

by someone else, or

Schedule J.

•

Merely buying or reselling plants or

Line 2

animals grown or raised by someone else.

If you do not have copies of those re-

turns, you can get them by filing Form

Elected Farm Income

4506. There is a $39 fee for each return re-

Fishing business.

A fishing business is the

To figure your elected farm income, first

quested. If your main home, principal place

trade or business of fishing in which the

figure your taxable income from farming or

of business, or tax records are located in a

fish harvested, either in whole or in part,

fishing. This includes all income, gains,

Presidentially declared disaster area, the

are intended to enter commerce or enter

losses, and deductions attributable to any

fee will be waived if the assigned disaster

commerce through sale, barter, or trade.

farming or fishing business. Include the de-

designation (for example, “Hurricane Ka-

This includes:

duction for one-half of self-employment

trina”) is written in red across the top of

tax only to the extent that deduction is at-

Form 4506 when filed. If you want a free

1. The catching, taking, or harvesting of

tributable to your farming or fishing busi-

transcript of your tax return, use Form

fish;

ness. However, it does not include gain

4506-T. See your Form 1040 instruction

2. The attempted catching, taking, or

from the sale or other disposition of land.

booklet to find out how to get these forms.

harvesting of fish;

You should find your income, gains,

3. Any other activity which can reasona-

Keep a copy of your 2006 income tax

losses and deductions from farming or fish-

bly be expected to result in the catching,

return to use for income averaging in 2007,

ing reported on different tax forms, such as:

taking, or harvesting of fish; or

•

2008, or 2009.

Form 1040, line 7, income from

4. Any operations at sea in support of, or

wages and other compensation you re-

in preparation for, any activity described in

Definitions

ceived as a shareholder in an S corporation

(1) through (3) above.

engaged in a farming or fishing business;

A farming business is

Farming business.

•

Schedule C or C-EZ;

the trade or business of cultivating land or

At the time these instructions

•

raising or harvesting any agricultural or

Schedule D;

went to print, there were pend-

•

horticultural commodity. This includes:

Schedule E, Part II;

ing Regulations that could

•

change the definition of a fish-

1. Operating a nursery or sod farm;

Schedule F;

•

ing business.

2. Raising or harvesting of trees bearing

Form 4797; and

•

fruits, nuts, or other crops;

Form 4835.

3. Raising ornamental trees (but not ev-

The word fish means finfish, mollusks,

Your elected farm income is the amount

ergreen trees that are more than 6 years old

crustaceans, and all other forms of marine

of your taxable income from farming or

when severed from the roots);

animal and plant life other than marine

fishing that you elect to include on line 2.

4. Raising, shearing, feeding, caring for,

mammals and birds.

However, you do not have to include all of

training, and managing animals; and

your taxable income from farming or fish-

5. Leasing land to a tenant engaged in a

ing on line 2. It may be to your advantage to

A fishing business does not include any

farming business, but only if the lease pay-

include less than the entire amount, de-

scientific research activity which is con-

ments are (a) based on a share of the

pending on how the amount you include on

ducted by a scientific research vessel.

tenant’s production (not a fixed amount),

line 2 affects your tax bracket for the cur-

and (b) determined under a written agree-

rent and prior 3 tax years.

J-1

Cat. No. 25514J

2006 Instruction 1040 Schedule J - Income Averaging For Farmers And Fishermen - Department Of Treasury - 2006

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