Before each return, write down how the farm’s income is reported for tax, who chose that and what it locks in. In Australia, for example, income averaging lets a farmer even out tax across good and bad years, and a farmer who opts out stays out for 10 years and, bar one narrow exception, cannot take that choice back. For a choice that binds for that long, write the name of whoever decided, a reason and a date to look at it again. Without that record, the choice is left to whoever fills in the forms. This advice is drawn from the US and Australian rules.
The record is one sheet of paper with five headings: the way you report, who chose it and when, what it locks in and what would make you change, where the papers are, and the review date. The five headings do not depend on any one country’s law. If nobody on the farm can say who made the choice, or when, that is the first thing to find out. Which way of reporting is better, and what each costs, is not covered here; that is for an accountant qualified in your country.
Are knowing the profit and choosing how to report it the same decision?
No: from your books you know what the farm earned, but how that profit is taxed depends on choices you make on the return. In the United States, farm profit goes on Schedule F, the farm page of the federal return. You generally choose an accounting method for your farm business, such as cash or accrual, when you file your first return that includes Schedule F, and to change it later you must generally get IRS approval.
Income averaging is a second, separate choice on the same return. On Schedule J, it lets a farmer figure the tax on all or part of the year’s farm income at the tax rates of the 3 prior years. It is made year by year with the return, and can be used, changed or cancelled on an amended return while the period for claiming a refund is still open. So one choice is made once and the other every year.
Australia has its own averaging. According to the Australian Taxation Office (ATO), the national tax office, income averaging lets a farmer even out income and tax over a maximum of 5 years, to take good and bad years into account. Staying in it or leaving it changes the tax, not what the farm earned.
The table sets the United States and Australia side by side: in each, the farmer makes reporting choices, though not the same ones. It shows that such choices exist and what each locks in; it is not a guide to anyone’s return, since the rule that binds you is your own country’s.
| Country | What the farmer chooses | When | What the choice locks in |
|---|---|---|---|
| United States | The accounting method (cash or accrual) | With the first return that includes Schedule F, the farm page of the return | Changing it generally needs approval from the IRS, the federal tax office |
| United States | Whether to figure the tax on farm income at the 3 prior years’ rates (Schedule J, income averaging) | Each year, with the return; it can be changed on an amended return while the refund period is open | Nothing beyond that year |
| United States | Whether a 2025 farm loss reduces the income of the 2 earlier years or is kept for later years | In the loss year; the 2 earlier years are the default | Which years’ income the loss reduces |
| Australia | Whether to stay in income averaging | Averaging applies automatically; leaving takes a written election lodged with the return | Out for 10 years, and the election can’t be taken back; averaging returns in year 11, with one narrow exception |
Sources: IRS Publication 225, for 2025 returns. ATO, Income averaging, updated 22 August 2025.
Brazil, Uruguay and Argentina also give farmers reporting choices of this kind, and some of them bind for years. The rules are in Brazil’s Law 8.023 of 1990, the farm guidance from Uruguay’s tax office and Argentina’s pages on changing category and leaving its simplified tax for small taxpayers.
What happens when nobody makes the choice?
When nobody makes the choice, the default in the rules applies, in Australia and in the United States alike. In Australia, the averaging adjustment for farmers is calculated automatically, and shows on the notice of assessment, so a farmer who never thinks about it stays in. Leaving takes a written election.
In the United States, a farm loss has a default too. A 2025 net operating loss from farming must be carried back two years, unless the farmer elects to give up the carryback and carry the loss forward to later years. In plain words, the loss is set first against the income of the earlier of the two years, then the next. The farmer can apply on Form 1045 for a tentative refund, a quick refund of part of the tax paid for those years. Giving that up, to keep the loss for later years, is the choice; doing nothing is the default.
So a reporting choice that nobody treats as a decision is still made, by the default in the rules or by whoever fills in the forms. When you write it down, you have to ask who made it. If nobody knows, write “not known” on the page until the accountant confirms who chose.
What does this year’s choice lock in for later years?
In Australia, a farmer who leaves averaging is bound for ten years. The election to leave averaging is made in writing, lodged with the return for the year it applies to, affects all assessments for the next 10 income years and can’t be revoked; year 11 is the first back in the averaging calculation.
Rurivia calculation from the ATO page on income averaging, updated 22 August 2025, counting the election year as the first of the 10 income years: a farmer who lodges an opt-out election with the 2025-26 return stays out of averaging from 2025-26 through 2034-35, and 2035-36 is year 11, the first back in the averaging calculation.
The only early way back the ATO describes is narrow: the farmer must show that, through retirement or any other cause, their income for that year has fallen permanently to less than two-thirds of their average income. The income the ATO counts here is basic taxable income: taxable income leaving out items such as net capital gains. The accountant can check the figures.
In the United States, changing the accounting method generally needs IRS approval, and with the loss choice the farmer decides which years’ income a bad year’s loss reduces: the two earlier years or later ones.
A large machine purchase can change the year’s taxable income, depending on your country’s rules on depreciation. If the year then closes at a loss, the US loss choice comes into play too, so look at the purchase and the way you report together. A separate article, on buying a machine by an investment plan rather than because the year was good, covers the plan.
Who is in the room when the choice is made?
The farmer is in the room for the decisions they see as their own. The way of reporting is often not one of them, so it stays with whoever fills in the return. You remain answerable for it either way. The IRS puts it plainly: “Although the tax preparer always signs the return, you’re ultimately responsible for providing all the information required for the preparer to accurately prepare your return and for the accuracy of every item reported on the return”.
In Ireland, Hayden, Mattimoe and Jack interviewed 27 farmers about 62 strategic decisions, from farm buildings to buying land and machinery. When an accountant took part, it was more often to give advice than as a “key advisor”, the authors’ term for someone significantly involved in the decision; when farm consultants took part, they were more often key advisors. One farmer said he has his own mind 90 percent made up and runs the decision by someone “just to pick holes in it”.
It is a small study, in one country, about expansion decisions rather than tax, and the 90 percent is one farmer’s remark, not a measured share. It shows only that a farmer can reach an advisor with the decision largely made.
A working rule, drawn from the IRS line and the Irish study: farmers keep the decisions they see as theirs and take advice on them, and a reporting choice they do not see as a decision goes to whoever fills in the forms. On the page, write the name of the person who actually chose, whether you, a parent or the accountant, or “not known”. The accountant can confirm or correct “not known”; a guess usually goes unchallenged.
Which papers do you need to still use a loss or change the choice?
You need the books, receipts and filed returns for every year whose figures you may still use, to claim a loss or to change the choice. In the United States, the general rule is to keep records for at least 3 years from the date the return was due or filed, or 2 years from the date the tax was paid, whichever is later. The IRS adds that some records must be kept longer, such as those on property until the limitations period runs out for the year it is sold. Income averaging can be changed on an amended return only while the refund period for that year is open.
Papers kept for those periods often end up in different places: the accountant’s office, a box at home, a folder on a computer, the bank’s online archive. On the page, list each place on its own line.
When should the choice come back to the table?
Before every return, and whenever something changes the figures the choice rests on: a year with a large machine payment, a year that closes at a loss, income well above or below the usual, or a new owner or partner. In the United States and Australia the choice goes in with the return, so the review is due a few weeks before the return. Write the review date into the farm’s calendar of obligations (a separate article covers that calendar of what comes due).
Where to start
The first time, about an hour, with the last filed return and the folder of tax papers on the table; after that, a review before each return. Steps one to five fill in the five headings of the page, and step six keeps the page where it will be found. Other written plans for the farm are in Rurivia’s library on planning.
The line that ages worst is the one about who chose. A son, a daughter or a partner who takes over the farm takes over its way of reporting too, without having chosen it, and often without the papers that explain it. Who takes over, and when, belongs in a written succession plan, the subject of a separate article on succession; deciding who makes this choice each year, and when it is reviewed, is part of how the farm is run.