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Reporting Timber Sales to the IRS

Started by Gary_C, October 14, 2009, 02:41:17 AM

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Gary_C

New rules for the reporting of lump-sum timber sales went into effect on May 28, 2009.  The IRS now requires anyone who sells timber on a lump-sum basis be issued a form 1099.     This new rule does not change the reporting requirements for pay-as-cut, which also requires the issuance of a 1099. Here is the official notice: http://www.irs.gov/irb/2009-24_IRB/ar06.html

If you didn't know, the form for reporting timber sales is Form 1099-S, Proceeds from Real Estate Transactions. If you haven't been sending these out for what is called pay-as-cut contracts, watch out this year. Anytime the IRS makes a change like this, the first year enforcement  is much higher than normal. And now both pay-as-cut and lump-sum contracts require a 1099 be sent.

If you are like me and have state, county, or other government sales, I don't know if those are included in the reporting requirements. Would not think so, but it is not clear from the notice.
Never take life seriously. Nobody gets out alive anyway.

Sawyerfortyish

So if were buying timber from farmers were now required to help collect the taxes? :-\. I feel bad enough for the farmer I'm cutting on now. His wife left he lost his job,has no other work in sight and his timber isn't worth much it was logged 15 years ago and that logger only took the good stuff and walked by the knotty trees.  Now I have to send him tax forms. I'm going to have to have someone (accountant,lawyer)look this over and see what I'm really required to do. This is just another fine example of how our government really works or doesn't work. They got me to do there job now. >:(

Gary_C

Ya and the IRS slipped this thru the "paperwork reduction act" with this statement.

Moreover, requiring information reporting as described in the preamble with regard to sales or exchanges of standing timber for lump-sum payments imposes minimal burden in time or expense. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. Chapter 6) is not required.

So your time is insignificant to those people in the IRS.  :-\

I hope your accountant or tax advisor is familiar with Section 631(a) or (b) of the IRS Code. If they are not, and most do not know it exists, you and the landowner are probably paying too much taxes. Income from the sale of standing timber is capital gain income and not ordinary income. That applies to both the landowner and logger if the landowner has owned the timber for at least one year and for the logger if you have owned thr right to cut the timber for one year also. So it will pay you as a logger to hold contracts to cut for at least one year.
Never take life seriously. Nobody gets out alive anyway.

Sawyerfortyish

Holding the contract is not going to happen here. His divorce wiped him out the land is going to be sold in the spring.
My brother knew about the 1099. So what happens if we don't send out 1099 forms? We never have it's not my problem or my job to police wheather someone pays there taxes or not. Besides all of these forms are available at the click of a button on line.

Gary_C

The 1099 forms are not available online. You can order the special forms online but the IRS insists that you use the machine readable forms that you must order. You are supposed to use special software to print those forms, but last year I just hand printed the only one that I sent. All my other sales are MN state and I don't think I have to send the state a 1099.
Never take life seriously. Nobody gets out alive anyway.

Ron Scott

And you are charged for the forms also. >:(
~Ron

nhlogga

1099 the landowner???!!! I don't know how other states work, but in NH the landowner has to pay a timber tax to the state. Now they get 1099 too? What a crock that is! Granted, the state tax isn't too much(atleast I don't think it is) but now they have to claim the money twice? Kinda like state and federal income tax, although NH doesn't have a state income tax. I guess good OL' Uncle Sam wants everyone to help bail out the banks and auto industry. Where's our stake in Government Motors and all the banks?
Jonsered 2260
Husky 562xp

Sawyerfortyish

You didn't cry loud enough so they gave yours to wall street :D

Bob G.

Yep Gary, you gotta love capital gains. These days we're seeing capital losses!

Try to hold onto the sales for at least a year. I think it's 3 years for the land owner. In theory if you sell the aspen today for $30 but you bought the land 20 years ago and paid $4 for the aspen, you only have the pay the taxes on the 20 year old price of $4.

Goes the same for the buyer. However it's not a huge leap like land owners.

Finally you can get the 1099-s on the Taxcut software.

Ron Scott

TAX TIP PUBLICATION FROM THE USDA

Tax Tips for Forest Landowners for the 2009 Tax Year
by Linda Wang, Forest Taxation Specialist
and John L. Greene, Research Forester, Southern Research Station

If interested, the publication has been posted to the Michigan Forest Pathways website [ http://miforestpathways.net/]. 
~Ron

frndly neighborhd loger

seems to me you pay tax on your timber when you pay property tax

BaldBob

Property tax is a local tax.  The tax being discussed is Federal tax.

frndly neighborhd loger

im just saying they get you coming and going :(

Ron Wenrich

For landowners, there's also a timber depletion allowance (unless they changed it).  But, you have to know your timber value when you bought the property.  If you owned the property for a long time, then there wouldn't be too much of a timber basis.  And, when you sell your property, you have to remove the basis from the original sale price.

The taxable amount would be the proceeds less the basis.  That amount is subject to the capital gains.  Good bookkeeping is necessary, and should start when you buy the property.

I had one client that was having timber cut that was killed by the gypsy moth.  He owned this land for only a few years.  But, since it was a forced sale, he claimed capital gains.  He was a lawyer.
Never under estimate the power of stupid people in large groups.

SwampDonkey

Up here the heirs were basically forced to liquidate the woodlot to pay the inheritance tax on capital gains until 2001. Now, as long as it's part of a commercial business to make a profit it could be exempt if it's of significant size, depending on how much time is spend on the woodlot and if you follow a current management plan. A little different, but we also have a silviculture tax credit that must be similar to what Ron is talking about. Again it has to be part of a business. Not an arm chair business, where you hire Joe logger to liquidate so you can make a big bank deposit. Ain't gonna do it. ;)
"No amount of belief makes something a fact." James Randi

1 Thessalonians 5:21

2020 Polaris Ranger 570 to forward firewood, Husqvarna 555 XT Pro, Stihl FS560 clearing saw and continuously thinning my ground, on the side. Grow them trees. (((o)))

Ron Scott

Tax Tips for Forest Landowners for the 2010 Tax Year

For those that work with forest owners, or loggers that work with forest owners, the annual Tax Tips from the USFS can be found at

[ http://www.fs.fed.us/spf/coop/library/taxtips10.pdf]. 
~Ron

g_man

Thanks for the tax tip links. I hope they help. I find that stuff pretty confusing. I get a 1099 from the mill which as a landowner I claim as capital gains after I subtract the cost of extraction and shipping. For my extraction and shipping costs I use fuel and any road material. Its probably a lot more complicated than that but getting an accountant for a $1K to $2K timber sale to pay yearly realestate taxes sounds expensive.

mad murdock

all of this heavy handed administrative rulemaking makes a guy want to do nothing with FRN's and just get by via barter all the way, but then I suppose they could get you for that somehow as well.  What a paperwork nightmare this will be!!
Turbosawmill M6 (now M8) Warrior Ultra liteweight, Granberg Alaskan III, lots of saws-gas powered and human powered :D

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