Legal Definitions - income averaging

Definition: Income averaging is a method of calculating taxes by averaging a person's current income with their income from previous years.

For example, if someone earned a lot of money one year but very little the next, income averaging would allow them to spread out their income over those two years and pay a lower tax rate overall.

This method is especially helpful for people who have fluctuating or bunched income, such as authors, actors, and athletes, who may face higher tax rates in years when they earn more money.

Overall, income averaging is a way to make taxes more fair for people whose income varies from year to year.