Instructions For Form N-168 - Department Of Taxation State Of Hawaii

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STATE OF HAWAII — DEPARTMENT OF TAXATION

2012

Instructions For Form N-168

(Rev. 2012)

Income Averaging for Farmers and Fishermen

(NOTE: References to “married”, “unmarried”, and “spouse” also means “in a civil union”, “not in a civil union”, and “civil union partner”, respectively.)

GENERAL INSTRUCTIONS

Qualified settlement income is any taxable interest and punitive damage

awards you received (whether as lump sums or periodic payments) in con-

Use Form N-168 to elect to figure your 2012 tax by averaging, over the pre-

nection with the Exxon Valdez civil action described above. Qualified settle-

vious 3 years (base years), all or part of your 2012 taxable income from your

ment income includes all such awards, whether received before or after the

trade or business of farming or fishing. This election may give you a lower tax

judgment and whether related to a settlement or a judgment.

if your 2012 income from farming or fishing is high and your taxable income

for one or more of the 3 prior years was low.

SPECIFIC INSTRUCTIONS

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

Line 2 — To figure your elected farm income, first figure your taxable

business of farming or fishing during any of the base years.

income from farming or fishing. This includes all income, gains, losses, and

deductions attributable to your farming or fishing business. If you conduct

You may elect to average farming or fishing income even if your filing sta-

both farming and fishing businesses, you must figure your elected farm in-

tus was not the same in the election year and the base years.

come by combining income, gains, losses, and deductions attributable to

You do not have to recompute, because of this election, the tax liability of

your farming and fishing businesses.

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

Elected farm income also includes any gain or loss from the sale or other

You may need copies of your original or amended Forms N-11 or N-15 that

disposition of property regularly used in your farming or fishing business for

you filed for 2009, 2010, and 2011 to figure your tax on Form N-168. If you

a substantial period of time. However, if such gain or loss is realized after

do not have copies of those returns, you can get them by filing Form L-72,

cessation of the farming or fishing business, the gain or loss is treated as

Request for Copies of Hawaii Tax Return. Form L-72 may be obtained from

attributable to a farming or fishing business only if the property is sold within

any district tax office, by mail, or via the Internet at:

a reasonable time after cessation of the farming or fishing business. A sale or

other disposition within one year of the cessation is considered to be within

a reasonable time.

Definitions

Elected farm income does not include income, gain, or loss from the sale

Farming Business. A farming business is the trade or business of cultivat-

or other disposition of land or from the sale of development rights, grazing

ing land or raising or harvesting any agricultural or horticultural commodity.

rights, and other similar rights.

This includes:

Generally, income, gains, losses, and deductions from farming or fishing

1. Operating a nursery or sod farm;

are reported on:

2. Raising or harvesting of trees bearing fruits, nuts, or other crops;

•

Form N-11 or N-15, income from wages and other compensation you

3. Raising ornamental trees (but not evergreen trees that are more than 6

received (a) as a shareholder in an S corporation engaged in a farming

years old when severed from the roots);

or fishing business or (b) as a crew member on a vessel engaged in a

4. Raising, shearing, feeding, caring for, training, and managing animals;

fishing business (but see Fishing business on this page);

and

•

Form N-11 or N-15, income from Exxon Valdez litigation;

5. Leasing land to a tenant engaged in a farming business, but only if the

•

Form N-11 or N-15, deductible part of self-employment tax, but only

lease payments are (a) based on a share of the tenant’s production (not a

to the extent that deduction is attributable to your farming or fishing

fixed amount), and (b) determined under a written agreement entered into

business;

before the tenant begins significant activities on the land.

•

Form N-11 or N-15, CCF reduction, except to the extent that any

A farming business does not include:

earnings (without regard to the carryback of any net operating or net

•

Contract harvesting of an agricultural or horticultural commodity grown

capital loss) from the operation of agreement vessels in the fisheries of

or raised by someone else, or

the United States or in the foreign or domestic commerce of the United

•

Merely buying or reselling plants or animals grown or raised by

States are not attributable to your fishing business;

someone else.

•

Federal Schedule C or C-EZ;

•

Fishing Business. A fishing business is the trade or business of fishing

Capital Gain/Loss Worksheet in the Form N-15 instruction booklet;

•

in which the fish harvested, either in whole or in part, are intended to enter

Federal Schedule E, Part II;

•

commerce or enter commerce through sale, barter, or trade. This includes:

Federal Schedule F;

•

1. The catching, taking, or harvesting of fish;

Schedule D-1; and

•

2. The attempted catching, taking or harvesting of fish;

Federal Form 4835.

3. Any other activity which can reasonably be expected to result in the

Your elected farm income is the amount of your taxable income from

catching, taking, or harvesting of fish; or

farming or fishing that you elect to include on line 2. You do not have to in-

4. Any operations at sea in support of, or in preparation for, any activity

clude all of your taxable income from farming or fishing on line 2. It may be

described in (1) through (3) above.

to your advantage to include less than the full amount, depending on how

5. Leasing a fishing vessel, but only if the lease payments are (a) based

the amount you include on line 2 affects your tax bracket for the current and

on a share of the catch (or a share of the proceeds from the sale of the

prior 3 tax years.

catch) from the lessee’s use of the vessel in a fishing business (not a fixed

If you received certain subsidies in 2012, your elected farm income can-

payment), and (b) determined under a written lease entered into before the

not include excess farm losses. See the instructions for federal Schedule F

lessee begins any significant fishing activities resulting in the catch; and

(Form 1040).

6. Compensation as a crew member on a vessel engaged in a fishing

business, but only if the compensation is based on a share of the catch (or a

Your elected farm income cannot exceed your taxable income. Also, the por-

share of the proceeds from the sale of the catch).

tion of your elected farm income treated as a net capital gain cannot exceed

the smaller of your total net capital gain or your net capital gain attributable

The word fish means finfish, mollusks, crustaceans, and all other forms of

to your farming or fishing business. If your elected farm income includes net

marine animal and plant life other than marine mammals and birds.

capital gain, you must allocate an equal portion of the net capital gain to each

A fishing business does not include any scientific research activity which is

of the base years. If, for any base year, you had a capital loss that resulted in

conducted by a scientific research vessel.

a capital loss carryover to the next tax year, do not reduce the elected farm

Settlement from Exxon Valdez litigation. You will be treated as engaged

income allocated to that base year by any part of the carryover.

in a fishing business with respect to any qualified settlement income you

Line 4 — Figure the tax on the amount on line 3 using the 2012 Tax Table,

received if either of the following applies.

Tax Rate Schedules, or Capital Gains Tax Worksheet from your 2012 Form

1. You were a plaintiff in the civil action In re Exxon Valdez, No. 89-095-CV

N-11 or Form N-15 instruction booklet. Enter the tax on line 4.

(HRH) (Consolidated) (D. Alaska); or

Line 5 — If you used Form N-168 to figure your tax for 2011 (that is, you

2. All of the following apply.

entered the amount from the 2011 Form N-168, line 22, on your 2011 Form

a. You were a beneficiary of a plaintiff described in (1) above,

N-11, line 27 or Form N-15, line 43), enter on line 5 the amount from your

b. You acquired the right to receive qualified settlement income from that

2011 Form N-168, line 11. If you used Form N-168 to figure your tax for 2010

plaintiff, and

but not 2011, enter on line 5 the amount from your 2010 Form N-168, line

c. You were the spouse or an immediate relative of the plaintiff.

Instructions For Form N-168 - Department Of Taxation State Of Hawaii - 2012

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