Income averaging

[Jesse]

Was there a time when income averaging could be done for great increases/decreases in income?

Is there anything now?

Our local bartenders and barbers must be educating themselves somewhere because I've had an awful lot of people all of a sudden wanting to average their income. Some claim they had an accountant, who ha since passed, do this for them in past years.???

[WhiteOleander]

Yes there used to be income averaging, but that went away in the 80's. Farmers/Ranchers can still do some type of it. I've only seen one in many past years. I think they use Sch J?. Anyway, The Barbers/Bartenders School of Tax Prep is way behind the times.

[jimmcg]

Was there a time when income averaging could be done for great increases/decreases in income?

Is there anything now?

Our local bartenders and barbers must be educating themselves somewhere because I've had an awful lot of people all of a sudden wanting to average their income. Some claim they had an accountant, who ha since passed, do this for them in past years.???

1. Yes there "was a time." For those of us old folks I believe it was in the Reagan era.

2. Only for certain qualified farmers and fishermen.

3. Define "passed years."

[taxmom34]

isn't there still in effect a five year averaging for retirement lump sum income? forgot what it is called, it's been years since i've used it. (back then you had a choice of 5 or 10 year averaging)

[Jesse]

1. Yes there "was a time." For those of us old folks I believe it was in the Reagan era.

2. Only for certain qualified farmers and fishermen.

3. Define "passed years."

I told one person, could have been, but my guess is it went away in 1986, isn't that when an entire tax code "overhaul" was done.

[jimmcg]

I told one person, could have been, but my guess is it went away in 1986, isn't that when an entire tax code "overhaul" was done.

You got it! As the infamous lyrics go "those were the days my friend."

[Burke]

isn't there still in effect a five year averaging for retirement lump sum income? forgot what it is called, it's been years since i've used it. (back then you had a choice of 5 or 10 year averaging)

See Form 4972 and instructions for lump sum distributions from retirement plans. (Everybody these days rolls them over.) You have to have been born before 1936, I believe, to use it. Most of them now gone. Yes, I think income averaging bit the dust in the Great Tax Overhaul of 1986. Before that, we used it a lot even for what could be considered not-so-large increases.

[Davc]

isn't there still in effect a five year averaging for retirement lump sum income? forgot what it is called, it's been years since i've used it. (back then you had a choice of 5 or 10 year averaging)

For that one you needed to be born before a certain date and those that qualified are mostly dead now.

[FEDUKE404]

Memories

The real "income averaging" was done by means of a Form 1040 Schedule G. IIRC, it involved using the current year and then the income from the last four years. Under the right circumstances (job promotion/stock windfall/etc) it could save the client big bucks.

There was a lot of number-crunching involved. At that "green place" we were required to record certain information each year on the tax return records so it would be available down the road.

This was all prior to computers and even calculators were just beginning to appear.

Our office even had a bonus for those persons who prepared the most Schedule G's!!

The Form 4972 does have an option for something resembling "ten-year averaging" but the rules/restrictions for that are so severe that I doubt if anyone will encounter those in the future.

The only remaining form involving averaging is in fact the "farmers and fisherman" Schedule J. My client base has no one that would fit into either category.

FE

[Gary2]

According to that bastion of historical reference material, Wikipedia, income averaging was eliminated by the second of Reagan's big tax cuts, the Tax Reform Act of 1986. I'm not sure when it was introduced, but I'm pretty sure it was available in the 60s, and probably earlier.

[DaveO]

I remember doing it once in the early 80's when I got a good promotion. But I get asked about it several times every tax season. Wish people's memory of the facts was a good as for the urban legends.