Forestry Consultants and Timber Taxes

November 1, 2017

Has Your Forestry Consultant Discussed Timber Taxes with You?

Land, whether you have intentionally purchased it as an investment or not, can be considered an asset for tax purposes. Work with your forestry consultant to better understand timber taxes and your tax responsibility for your forest land.

SHARE

Owning timber land in Pennsylvania or any other state for that matter bears with it responsibility. This responsibility can come in the form of sustainable conservation, water resource protection and wildlife management. However this time of year, forestry consultants should be providing landowners with some very important information. Timber taxes and a landowner's responsibility varies, but not understanding can have you in a hole or missing out on tax breaks.

A Breif Timber Tax Guide

Land, whether you have intentionally purchased it as an investment or not, can be considered an asset for tax purposes. What that means is activities that occur on your forest lands, regardless of whether or not you hire a forestry consultant, are subject to tax responsibility. A good timber tax guide is below. It is produced each year by the U.S. Forest Service to give landowners updates on timber taxes.

2017 Tax Tips for Forest Landowners

Tax implications of forest land is not all bad. For instance, tax deferred programs exist to reduce property taxes for lands kept in conservation priorities. Also, certain deductions can be made based on how you define your land management and forestry operation on your taxes. In these two cases, knowing timber taxes and how to apply them are helpful. The important point is that you know all the various ways timber land can be accounted for and how to make it work in your favor.

Two Common Timber Tax Tips 

The two most common ways timber taxes come into play with land is through timber sales and cost share distributions. These two activities both produce federal income tax on timber liabilities. If you have had either occur in 2017, consider these timber tax tips.

Selling Timber in Pennsylvania creates income and expenses that have to be claimed on your taxes, specifically on your IRS Form T. Forestry consultants should make you aware of such tax liabilities early on in the process so that at year's end you are not shocked with a high tax bill. Knowing what your timber is worth before going through a timber sale can give you a good idea on how the sale may potentially affect your taxes for that year.

Besides selling timber, the other common timber tax issue for landowners is cost share distributions. Cost share programs are a great resource for landowners to help cover some of the costs for conservation work on their property. However, these payments are counted as income and must be claimed on your yearly tax returns. Work with your forestry consultant to understand how conservation programs impact your land management objectives and financial responsibility. 

Reducing Your Tax Liability

Similar to taxes in general, your timber taxes can be reduced through deductions. The amount and type of deductions varies based on how you define your forest land. This is where a tax professional, which we are not and most forestry consultants are not either, should be consulted. A big part of this equation is determining tax basis of timber on your property, which a forestry consultant can help with. Maintain detailed and complete records throughout the year of all activities of income and expenses on your lands. This will help your accountant determine more easily what timber tax liabilities you may have.

To wrap up, many landowners do not think about how land management activities impact their tax responsibility. Having a forestry consultant who is aware of timber taxes is critical. Activities such as timber sales have tax implications that can sometimes mean the difference in if the sale goes through or not. One of the best timber tax tips is to keep good records so you or your tax professional can accurately determine your year end tax liability.