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Tips for Saving Money on Federal Taxes on Timber Sales
from:During the 2006 tax season, the Federal government included some provisions to help those who are in the business of selling timber. Below you will find some tips you can use to help you save money on Federal taxes on timber sales when you file your taxes.
1. Establish your basis as soon as you can and make sure to keep good records. Record what you had to pay to acquire forestland or the value of any inherited forestland as soon as possible. You can use these costs in the future as a depletion deduction from Federal taxes on timber sales. You will also need to adjust or step up your basis any time you make a new purchase or investment and step down the basis for sales and other disposals. Keep impeccable records of all related information and report basis and timber depletion on IRS Form T, Part II.
2. During the 2006 tax year, you can deduct the first $10,000 of qualified reforestation work that you performed. In addition, you can deduct any amounts over $10,000 over 84 months, except during the first year when you can only claim one-half of the amortizable portion to reduce your Federal taxes on timber sales.
3. You may take advantage of provisions for long-term capital gains on timber sale income if you sold timber during 2006. In most cases when you selling timber that is in a lump sum or a pay-as-you cut basis, any proceeds from that sales are long-term capital gains. If you hold the timber for over one year, you qualify for this long-term capital gains treatment option and you don't have to pay any self-employment tax on capital gains, which saves you money on Federal taxes on timber sales.
4. If you suffered a loss, you can usually only take a deduction for losses that are physical and have run their course such as fires, floods, ice storms, and tornadoes. Your deduction from Federal taxes on timber sales for casualty or non-casualty losses is limited to your timber basis less any reimbursements from insurance or salvage value.
5. You must report any Federal or State cost share assistance that you may have received during the year. You may elect to exclude all of some of the monies, but you are required to report it. If the program qualifies for exclusion, you can include he payment in your gross income in order to make use of tax provisions that may be beneficial or exclude the amounts that are excludable.
These are just a few tips you may be able to use to save money on Federal taxes on timber sales. You want to talk to a tax expert or accountant to make sure that you are taking advantage of all of the deductions that are allotted to you.
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