Family Forest Owners Need More Help with Federal Taxes

Lack of knowledge can affect how forests are managed

Lack of knowledge about taxes can affect how forests are cared for in the future. Photo by South Carolina Forestry Commission.

A recent study by U.S. Forest Service and university researchers offers suggestions on improving efforts to inform family forest owners about beneficial federal income and estate tax provisions available to them. The researchers base their suggestions on focus groups they held in five locations across the United States. The results were published in the January 2014 issue of the journal Forest Policy and Economics.

Focus groups were held in Manchester, New Hampshire; Columbia, South Carolina; Calera, Alabama; Wausau, Wisconsin; and Olympia, Washington. Researchers chose these cities because they’re in areas with substantial amounts of privately-owned forest land under pressure from development. Two focus groups were held in each location, one with forest owners who were enrolled in the state preferential tax program for forested land, and the other with owners who were not enrolled.

“The focus group members were much like family forest owners in general,” said John Greene, Forest Service Southern Research Station emeritus scientist and lead author of the study. “Most of them hold their land for purposes other than timber management, but when they do harvest timber or when forest land is transferred from one generation to another, lack of knowledge about taxes can easily result in overpayment of taxes, which has implications for how the land is cared for in the future.”

The researchers analyzed transcripts of focus group discussions both quantitatively and qualitatively. They found that participants spent about twice as much time talking about federal estate tax than federal income tax. Some common themes emerged from the discussions:

  • The uncertainty from almost annual changes in federal estate tax provisions over the last 10 years affects landowners negatively;
  • Not all accounting, legal or forestry professionals are knowledgeable about federal estate tax as it applies to family forest owners;
  • Children or other prospective heirs often have little interest in the family forest;
  • Lack of estate planning or leaving an undivided estate can result in land being sold or broken up; and
  • Equitably dividing an estate consisting largely of forest land can be difficult.

The researchers found that even though family forest owners who participate in state preferential property tax programs may be somewhat more knowledgeable about federal taxes than those who don’t, there’s plenty of room for improvement in informing forest landowners.

The article concludes with suggestions on how to improve efforts to inform forest landowners about federal income and estate tax provisions, including:

  • developing teaching modules on federal taxes for use in existing extension and technology transfer programs;
  • providing continuing education short-courses on federal taxes for forestry, accounting, and legal professionals;
  • simplifying and coordinating the requirements to qualify for beneficial tax provisions; and
  • using peer learning and other experiential methods to provide information about federal taxes.

“Lack of knowledge and misconceptions about federal tax provisions among forest family land owners are the weak links in the tax policy chain,” said Greene. Even the best-designed tax policy tools will fall short of achieving their desired effects if forest landowners are unaware they exist or don’t understand how they can be used effectively.”

The article includes sidebars that describe federal income and estate tax provisions beneficial to family forest owners. The American Forest Foundation provided funding for the study.

More information is available in the full text of the article.

For more information, email John Greene at jgreene01@fs.fed.us

More information about federal income taxes is available at Tax Tips for Forest Landowners for the 2013 Tax Year and Ag. Handbook 731, Forest Landowners’ Guide to the Federal Income Tax.

For information about estate planning for forest landowners, read GTR SRS-112, Estate Planning for Forest Landowners: What Will Become of Your Forestland by Greene and others.

Access the latest publications by SRS scientists.

 

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