Timber Income Taxes and You

When you cut trees for sale as timber or firewood, you may owe federal income taxes on that income. Death and taxes are assured they say, but they should add one other cliche and that is that you can be assured that taxes will change. So how can a reasonable person stay informed and do the right thing when it comes to taxes? When presented with highly technical and complicated topics, most of us find an expert to help. The problem with timber income tax is that there does not seem to be many who specialize in timber and taxes.

My first bit of advice then is even though you do not need to be an expert yourself, you need to spend some time researching who is, find the best information and share it with your accountant or tax preparer.

Here is a listing of some of the best references for you to add to your library: The USDA-Forest Service, Purdue University and others host the National Timber Tax website. Very few sections of the Internal Revenue Code are written specifically for timber. This means there is a considerable amount of interpretation involved. This website was developed to be used by timberland owners, as well as a reference source for accountants, attorneys, consulting foresters and other professionals who work with timberland owners by answering specific questions regarding the tax treatment of timber.

"The Forest Landowners Guide to the Federal Income Tax", (Agriculture Handbook 718) is available to at the National Timber Tax web site. If you want to buy the entire handbook in book form you can order it from the US Government Bookstore for $20.00 by calling toll free 1-866-512-1800. Or order it online at http://bookstore.gpo.gov (enter 0-16-042794-0 as the sales product catalog), or you can print an order form.

"Federal Income Tax on Timber: A Key to Your Most Frequently Asked Questions" is available from the UNH Cooperative Extension Forestry and Information Center at 1-800-444-8978. It describes common forest activities, how to qualify for the best tax treatment, and suggests appropriate tax forms.

The "Forest Management Account Book" provides information about taxes. Though written before some recent changes, it has a useful workbook section that gives you a place to write down everything you should be writing down. It costs $4.50 plus shipping from Maryland Cooperative Extension and is available by calling 301-403-4264.

Though the details of the tax law change and may make you dizzy, there are some truisms that never change. The need to keep records of activities, expenses, and income is one such truism. A journal reporting forest management activities in chronological order noting the date, who was involved, the purpose of the activity, time spent, and expenses or revenues may be the most practical record for those owning property for personal enjoyment.

One thing that we may tend to overlook is the value that a forest stewardship plan can have as a tax document. To be useful for this purpose, it needs to have an inventory supported by science and statistics. For information about timber taxes or forest management plans, contact the UNH Cooperative Extension Forestry Information Center at 1-800-444-8978.

Karen P. Bennett UNH Cooperative Extension Professor and Specialist, Forest Resources