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How this helps you:

If you generate income and expenses from your woodland, this will help you with income tax reporting. It also will alert you to property tax programs for managed forest land, help you predict financial returns from forestry investments, and get started with estate planning.

Federal Income Tax Guidelines
Property Taxes
Financial Analysis of Woodland Investments
Carbon Credits for Forestry
Estate Planning

Federal Income Tax Guidelines

and whether you own woodland primarily for

How you report forestry income and expenses depends on a correct classification of your enterprise.

This chapter focuses on taxpayers as individuals managing timber as an investment or as sole proprietor of a business. If you are not managing your woodland with the intent to make a profit, much of this chapter may not apply to your situation.

Entry #

Date

Details of the Activity

Hours

Miles

Revenue

($)

Expenses

($)

1

1/20/09

Completed timber sale
10 ac.  20 cords/ac.  @ $25/cord
contract and forest management plan in office file, time spent on site with logger

8 hr
10 miles

$5,000

2

1/21/09

Paid consulting forester fee,
Ck.519, contract in office file

Walk the property with the forester

3hr

10 miles

$300

3

2/1/09

Paid accountant – Ck.520 – 2008 income tax prep & filing

2 hr

$250

4

2/1/09

Purchased new chain saw –
Ck. 521, owner’s manual in office file under power tools

$500

5

3/30/09

Completed red pine pre-commercial thinning in stand #5, 4 ac., pictures on office computer hard drive. Work completed by owner during first three weeks of March

80 hr
200 miles

6

8/20/09

Examined property with service forester

4 hr
10 mi

7

10/1/09

Paid property tax to county assessor - Ck. 525

$1375

8

10/14/09

Received check from Minnesota Department of Revenue for SFIA

$785

9

10/14/09

Sold balsam boughs – 100 bundles @$5 per bundle

20 hr
10 mi

$500

Adapted from Recordkeeping: A How-to-do-it Guide for Small Woodland Owners. March 2007. N. E. Elwood and S. R. Gregory, Oregon State University Extension Service.

(see Employer’s Supplemental Tax Guide in Links and References section.)

Different sale methods may affect how you determine the amount of income, whether income is a capital gain or ordinary gain, and how you report income.

Property Taxes

Financial Analysis of Woodland Investments

Follow the recommended Steps in a Financial Analysis (PDF, pages 187 – 191):

Carbon Credits for Forestry

Estate Planning

Step 1: Read about Estate Planning

Read the section on Estate Planning (Adobe PDF icon PDF; pages 193 – 195)

Step 2: Discussion your goals

Discuss your goals for the woodland you own with family members and others that have a stake in it. Listen to their concerns and expectations.

Step 3: Get an appraisal

Get an accurate appraisal of the value of your woodland and other assets.

Step 4: Determine the impact of taxes

Determine the impact of state and federal estate taxes on the disposition of your estate. You may need to work with an estate planner.

Step 5: Prepare a Will

Prepare a Will to insure that taxes and creditors are paid and assets are transferred to heirs as you wish.

Step 6: Designate beneficiaries

Designate beneficiaries on financial accounts to keep them out of probate.

Step 7: Determine if a trust is appropriate for you

Talk to an estate planning attorney about whether a trust is appropriate for you.

Step 8: Think about continuing your forestry business

If you want your forestry business to continue after your death, talk to an attorney about what type of business ownership is most appropriate. Options include, but may not be limited to: sole proprietorship, joint tenancy, tenancy-in-common, family limited partnership, limited liability company, S corporation, and C corporation.

Step 9: Consider your legacy

Consider whether a conservation easement or land donation may help fulfill your legacy. A conservation easement or land donation may result in an income tax or estate tax deduction if the land is properly valued and the receiving organization is a government body or 501(c)(3) organization. Search the Internet for public agencies and nonprofit land trusts that offer conservation easements or that accept land donations.