Screen J - Schedule J - Farm Income Averaging (1040)

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Enter any other income considered taxable farming and fishing income, such as Exxon Valdez payments or the Net operating loss carryforward attributable to farming or fishing included on Form 1040, line 21. The application uses amounts in this field to increase or reduce the calculated total taxable income attributable to farming or fishing as shown on Schedule J Income Averaging Worksheet 1.

The application determines taxable income attributable to farming and fishing, then uses the amount to determine the optimal "Elected farm income" for Schedule J - Income Averaging for Farmers and Fishermen. Elected farm income is limited to the lower of the taxable income or the taxable income attributable to farming/fishing. If any of the Elected farm income fields contain data, the calculated taxable income attributable to farming/fishing is not used.

The application calculates the taxable income attributable to farming or fishing using information from screens throughout the application. The calculated amount is from the following table and appears on Schedule J Farm Income Averaging Worksheet 1.

Taxable Income from Farming/Fishing UltraTax CS Data Entry
Schedule F - Profit or Loss from Farming Screen F (all activities)
Wages received as Shareholder of S corp involved in farming/fishing or as a fishing crew member Screen W2 with a Wage code of 3
Schedule C - Profit or Loss from Business Screen C with an activity code of 114110, Fishing
Form 4835 - Farm Rental Income and Expense Screen 4835 with the Considered farming business for income averaging field marked
Schedule E, Part II - Income or Loss from Partnerships and S Corporations Screen K1-2 with the Farming activity and/or Fishing activity fields marked
Ordinary and other income from Schedule J Screen J
Deductible portion of self-employment tax Schedule SE for farming and fishing activities
Deduction for Capital Construction Fund Screen OtherTax
Net ordinary gain or loss from sale of farming business property Farm and fishing assets sold, Screen K1-2 field, and Screen InstPY in the Personal Sale folder
Short-term and Long-term capital gains Screen B&D indicated as farm, Screen Sale, Screen K1-2 fields, and Screen InstPY in the Personal Sale folder

Notes

  • The application automatically calculates taxable income attributable to farming and fishing. The computed amount will be used to optimize elected farm income for income averaging.
  • Complete the Elected farm income fields to optimize income amounts that differ from the total taxable income attributable to farming/fishing.
  • If any of the Elected farm income fields contain data, the application uses only the Elected farm income fields to complete Schedule J. If a field in that section is blank, the application reacts as if it contains zero. When using the Elected farm income fields, enter data in all applicable fields even if the elected field is equivalent to the calculated Total taxable income attributable to farming/fishing amount.

Enter the elected farm income amounts that differ from the calculated total taxable income attributable to farming/fishing. The application uses these amounts (instead of the calculated taxable income attributable to farming/fishing) to determine the portion that creates the lowest tax using Schedule J, Farm Income Averaging.

Notes

  • Complete the Elected farm income fields to optimize income amounts that differ from the total taxable income attributable to farming/fishing.
  • If any of the Elected farm income fields contain data, the application uses only the Elected farm income fields to complete Schedule J. If a field in the section is blank, the application reacts as if it contains zero. When using the Elected farm income fields, enter data in all applicable fields even if the elected field is equivalent to the Total current year taxable income attributable to farming/fishing field.

When this field is marked, the application uses the amounts entered as elected farm income in their entirety to calculate Schedule J, Farm Income Averaging, and does not optimize the amounts.

The application calculates the Schedule J tax based on input throughout the return and the information on this screen, but only prints Schedule J and supporting worksheets if the Schedule J tax is lower than the tax calculated using the tax tables, tax rate schedules, or Schedule D. Enter X in this field to use the Schedule J tax calculation regardless of the tax optimization completed by the application.

Enter X to suppress the printing and calculation of Schedule J. The application then calculates the income tax using one of the other methods of computing the tax.

Prior Year Information section

Enter the amounts from the three prior tax years. The application requires these amounts to calculate the current-year tax using Farm Income Averaging. Enter filing statuses for prior years if they are different from the current year. The application proformas these fields if data was entered in this screen in the prior year. The application defaults to the next following-year's filing status if the Filing status field is blank. For example, if the Filing status fields for prior years are blank, the application defaults to the filing status for the most recent year.

To calculate the taxable income for the base year for Schedule J income averaging, you must enter two adjustments. Enter the capital loss adjustment from the base year if there is a loss on line 21 of the 2014, 2015, or 2016 base year Schedule D forms. If this amount is a loss, add this loss (as a positive amount) and the current-year capital loss carryover. From that sum, subtract the amount of the loss on the current-year Schedule D. For more information on the adjustment, see the Schedule J instructions. The application enters this amount on line 2 of the Taxable Income Worksheets on Schedule J Worksheet 1. Enter this adjustment only if your taxable income for the base year is a negative amount.

In order to calculate the taxable income for the base year for Schedule J income averaging, you must enter two adjustments. If the client had a net operating loss in the base year, enter that amount (as a positive amount) in this field. Otherwise, enter (as a positive amount) the portion, if any, of the NOL carryovers and carrybacks to the base year that was not used in the base year and was carried forward. For more information on this adjustment, see the Schedule J instructions. The application enters this amount in line 2 of the Taxable Income Worksheets on Schedule J Worksheets 1. Only enter this adjustment if your taxable income for the base year is a negative amount.

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