Tree Farmer - November/December 2009 - (Page 40)

End-of-year Review: BiLL it was a “strange” summer in many ways, including calls i received from individuals who sold timber. Wishing it were so has led some taxpayers to take advice from timber buyers who want to deliver good news, regardless of the facts. some have simply told sellers that timber income isn’t subject to the federal income tax. others have stated that timber income qualifies for the exclusion of gains on the sale of a primary residence. these examples are the exception, not the rule. Reputable buyers refer sellers to tax professionals and other qualified sources. taxing issues By Watch for changes hoover Congress has usually completed its voodoo on the Internal Revenue Code by now, but not this year. All bets are off until something is done with health care legislation. Tax revenue will have to increase. An increase in the capital gain rate is likely. The application of the capital gains rate to qualified dividends is also likely to be eliminated. Taxpayers with adjusted gross income of $200,000 and more are likely to face higher ordinary rates. Congress is expected to eliminate the zero tax rate on estates of decedents dying in 2010. The top rate will become 45 percent, and the excludable amount will be the current $3.5 million. These would seem to be simple changes that could be made in a timely manner, but have not been. The gift tax provisions will most likely stay as they are, with a $1 million lifetime exclusion for taxable gifts. The 2009 Farm Bill and some stimulus programs include payments for participation in conservation and fuel reduction programs. Some payments may eventually qualify for tax exclusion in whole or in part. The approval process involves the Departments of Agriculture and Treasury — making completion all but impossible for filing 2009 returns. Report cost-share and other payments as income and work with your preparer to determine if there is an offsetting deduction. In some cases there will not be, e.g., payments to participate in a fire safe program for a residence in the west. Report payments in the year received, and if the exclusion provisions come into effect in a later year, file an amended return if this helps. the land, the increase in land value can be included. But you have to have documentation. Year-End Decisions Make a rough calculation of your 2009 tax liability assuming adjustments for flexible income and deductions. To be reportable in 2009, income must be constructively received — available for use by the taxpayer — payments made by December 31. This assumes a cash-basis, calendar-year taxpayer. Advancing payments that are not due until 2010 should be discussed with your preparer. Reforestation projects and management activities may be flexible. You can deduct up to $10,000 per year for each qualified timber property (QTP). If you will be spending more than William L. “Bill” Hoover is forestry professor, Extension coordinator, and assistant head for the Department of Forestry and Natural Resources, Purdue University 1159, W. Lafayette, IN 47907-1159; . Justify Your Profit Motive & Potential As always, I can’t emphasize enough that the deductibility of operating expenses other than property taxes depends on whether or not your spending decisions are based on profit potential. Profit potential is based on the productivity of your timber and other sources of income and expected increases in asset values. Unless you are speculating on Tree Farmer NOVEMBER/DECEMBER 2009

Table of Contents for the Digital Edition of Tree Farmer - November/December 2009

Tree Farmer - November/December 2009
Contents
Safety 101: Using Small Woodlot Equipment
Buyer’s Guide & Resource Directory
Consulting Foresters & Managers
Associations
Fertilizers, Herbicides & Repellents
Forest Appraisal, Analysis & Management
Forest Measuring Instruments & Software
Insurance
Resources
Land Sales
Seeds & Seedlings
Real Estate Brokers
Timber Buyers & Loggers
Supplies, Gifts & Apparel
Timber Pricing Services
Tax Advice & Timber Taxes
Tools & Equipment
Tree Paint & Markers
Tree Protectors & Shelters
Wood Manufacturers
Agencies
Associations & Organizations
Tree Farm State Contacts
Grant, Loan & Cost-Share Programs
Cooperative, State Research, Education & Extension Services
State Foresters
Make Your Home and Forest Fire Resistant
Taxing Issues
Ties to the Land
A Safe Harbor for Two Threatened Species
Tools & Techniques
Timberland Liability - Are You at Risk?

Tree Farmer - November/December 2009