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Understanding Taxes: Property, Income, Sales, Employment, and Other Types

Learn about property tax based on property value, death taxes, income taxes, sales tax types, employment taxes, and other tax categories including the forester's role in tax planning and timber sale consideration.

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Understanding Taxes: Property, Income, Sales, Employment, and Other Types

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  1. Introduction to Taxes

  2. Basic Types of Taxes • Property – ad valorem • Death - ad valorem • Income – salary, wages, profits, etc. • Sales – price paid • Employment – salary and wages • Other – excise, license, etc.

  3. Property Tax • Based on value of property • Fair market value • Assessed value • Milage rate x Assessed value = tax due • 1 mil = $0.001 • Biases long-term investments in timber if standing timber is assessed • Example

  4. Impact of Ad Valorem Tax on Timber Annual Property Tax Due Land – increase $50 per year Timber – increase 6% per year Assessed value – 10% of market value Milage – 100, i.e. 1% Initial value of land --$1,500 Land & Timber Initial value of timber --$2,100 Land Only

  5. Death Taxes • Types • Federal • estate • gift • State • estate • Inheritance • Basis for tax – ad valorem • Requires land and timber appraisal

  6. Income Taxes • Types • Federal • State • Local • Basis • Wages, salary, business profits • Gains from disposal of assets • Sale price minus amount paid for it • Timber depletion very complicated

  7. Sales Tax • Types • Federal • Pittman-Robertson tax on ammunition, etc. • On-road fuel • Alcohol • State • Local – county, city • Basis • Sales price

  8. Employment Taxes • Workers comp • Unemployment • State • Federal Unemployment Tax Act (FUTA) • Federal Insurance Contributions Act (FICA), aka, social security • Medicare – hospital Paying $1 of wages requires paying $0.35 to $0.50 in taxes

  9. Other Taxes • License fees • Registered forester, logger • Vehicles • Excise

  10. Forester’s Role • Provide valuations needed for basis allocation • Timber • Land • Allocation procedure • Original basis • Purchase – acquisition cost • Inheritance – date of death fair market value, stepped-up basis • Gift – grantor basis carries over

  11. Forester’s Role • Allocation of original total basis • Basis of each asset is it’s % of total fmv times original total basis, e.g. • Acquisition cost - $100,000 • FMV timber - $75,000 • FMV land – $50,000 • Total fmv - $125,000 • Timber is 60% • Land is 40% • Original basis of timber - $100,000 x 0.60 = $60,000 • Original basis of land - $100,000 x 0.40 = $40,000 • Total original basis is $100,000

  12. Forester’s Role • Assisting with timber sale • Ask if seller has basis in timber • If they do provide estimate of total volume on tract, not just volume to be sold • How to claim timber depletion on sale • Depletion unit = $ basis / total volume • $60,000/ 300 MBF = $200 per MBF • Depletion allowance = Depl. unit X Volume sold • $200 per MBF x 150 MBF sold = $30,000

  13. Forester’s Role • Gain on timber sale • Revenue from sale – Depletion allowance • $55,000 revenue - $30,000 depl. allowance = $15,000 taxable gain • Warn client that timber sale revenue is taxable even though they don’t get an IRS Form 1099.

  14. Forester’s Role • Explain long-term capital gains treatment • Ordinary income if not sold on the stump • Warn them that if they sell “on the shares” the contract must grant logger a “contract right to cut timber on their own account” • Otherwise • If owned more than 1 year it’s long-term capital gain on Form 1040, Schedule D

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