INCOME AVERAGING
income averaging. Tax. A method of computing tax by averaging a person’s current income with that of preceding years. [Cases: Internal Revenue 3092. C.J.S. Internal Revenue ¡ì 334.]¡°A distinct departure from the strict annual system of taxing income is the concept of averaging income, allowed until repeal by the 1986 T.R.A…. [T]he rate at which the item was taxed was made to depend not only on the rates and level of income for that year, but upon the taxpayer’s experience over the past four years. The item was (sometimes) taxed as if it had been received over a four-year period. Especially for authors, actors, athletes, and other taxpayers who have fluctuating or bunched income and face graduated tax rates that apply on an annual basis, income averaging was most important.¡± John K. McNulty, Federal Income Taxation of Individuals in a Nutshell 353 (5th ed. 1995).
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