- Author: Grace Dean
April showers bring May flowers…along with the less colorful tax season. When you're a forest landowner, filing taxes is more complicated than it would be when only reporting one's wages. But don't let that intimidate you. For both new and experienced landowners, an excellent introduction to forestland income taxation is the Federal Owner's Guide to the Federal Income Tax, Agricultural Handbook No. 731, available here. In addition, here is a compilation of the top tax tips that you should keep in mind, pulled from the USDA Forest Service's “Tax Tips for Forest Landowners: 2022 Tax Year”. Read the full guide here. Another important resource is the National Timber Tax website, which you can find here.
Remember, keeping detailed records and understanding the implications of activities on your land is instrumental when preparing for the current and subsequent tax reporting years. Always consult your tax advisor before filing, as the following tips are intended to serve as an educational resource.
Tax classification? Needs some translation.
Asking yourself: “What is the purpose of owning this land?” and beginning to think of your land as more than a recreation site may be strange. However, if you are producing periodic income, your forestland could be classified as an investment or business for income tax purposes. Characterizing the reasons for owning your land is the first step towards ensuring that you are utilizing the correct filing provisions of the Internal Revenue Code (IRC) and qualified deductions. If you haven't already done so, below is a flow chart that can help you start determining whether your land is characterized as an investment, business, or personal use property.
When figuring out which taxation rates and deductions apply to an investment or business property, you must first determine the correct cost allocation for any assets (e.g land, timber, improvements). This process can be complicated, and we recommend both starting early, and consulting your forester and/or tax advisor to guide you through the process.
Once you have characterized the reasons for owning forest land, it becomes easier to understand the rest of the tax jargon and which incentives you may qualify for. Here we will expand upon various incentives and deductions that many forest landowners could qualify for, whether they consider themselves a business or an investment.
Tax expert tip: The basis for a particular asset or asset class changes over time due the events such as depreciation, reforestation, casualty losses, and periodic timber sales. The changes are described as adjusted basis. Consult with your tax advisor regarding adjustments to basis.
Are you a participant in a cost sharing program?
Congress granted landowners who participate in certain conservation-based cost-share programs the ability to exclude income received from that program (reference IRC Section §126(a)). Some commonly known eligible programs are recognizable (EQIP, CFIP, and FHHP), but determining the eligibility of some other federal and state-based programs may be more difficult.
The USDA recommends contacting the respective administrator for the program(s) you may have participated in to check its applicability for this exclusion. You can also use this handy calculator provided by the TimberTax.org website to get an idea of what portion of income may be excluded.
Tax expert tip: For cost share programs requiring owner participation, it may be wise to include the government payments and deduct the entire costs, thus showing a loss to the business or investment.
Other tax incentives and deductions for Investment or Business Property
Have you paid for precommercial thinning or control of competing vegetation? If you are involved in those and other day-to-day forest management activities on your land, you may be considered a material participant. This opens the door to deduct many expenses considered necessary for business operations. However, only land characterized as an investment or trade/business is eligible for these deductions, which are explained in greater detail below.
Tax expert tip:IRC § 469 provides a series of tests for material participation. If you cannot meet the criteria of these tests, the deductibility of some types of expenses may have to be deferred to subsequent years.
- Reforestation: Expenses such as site prep, seeds/seedlings, labor (not personal), tools, etc. may be eligible for a tax deduction of up to $10,000 with additional expenses amortized over 7 years. Make sure that your land is a QTP (qualified timber property)- this means that your land is involved in the commercial production of timber products under IRC § 194.
- Casualty loss: If your land has suffered timber loss due to a wildfire, flooding, or other natural disaster, the casualty may qualify for a tax deduction under IRC §165. Here is a 2021 UCCE blog that covers casualty losses in greater depth.
- Capital costs: Bridges, fences, culverts, and other land improvements as well as major pieces of equipment, e.g. trucks, tractors etc. are all considered depreciable assets.
- Precommercial thinning or control of competing vegetation is generally treated as a deductible expense in the year that the expense is incurred.
Tax expert tip: Under current law, casualty losses are very limited for forest land characterized as personal property. Forestland characterized as investment or business property losses are limited to the lower of the property's adjusted timber basis or the change in FMV (fair market value) to determine the size of their deduction.
Regarding income for timber sales:
While net income from timber sales is considered taxable income, the type of income and tax rates may be significantly different. For timber that has been owned for a year or more, the net income from a sale may be treated as a long-term capital gain. The consequence is a much lower marginal tax rate than ordinary income. The taxation of timber is governed generally under provisions of IRC 631(a) [ trees manufactured into logs and delivered to a sawmill], or §631(b) [standing trees (Stumpage) sold to a sawmill who is responsible for cutting and removing the designated trees to their mill], and IRC §1231 [capital assets].
There are significant differences in how the capital gain is calculated under IRC §§ 631(a) and 631(b) that are beyond the scope of this blog. However, the Federal Owner's Guide to the Federal Income Tax, has a good discussion of this procedure with examples.
Treating your forest land as a business or investment is an important step forward in efficiently managing your forest which can lead to many incentives and deductions that will legally reduce your income tax burden. The resources discussed above are important to keep in your landowner toolkit and can help you approach this and following tax years with more knowledge.
- Author: Pamela Kan-Rice
Go paperless today: Here's how
On UCPath, select Employee Actions > Income and Taxes. From there, go to:
- Online 1095-C consentPDF
- Enroll to receive online W-2PDF, and (if you need to)
- Direct DepositPDF
Complete the necessary security checks and follow the steps to enroll. The links above lead to detailed instructions, available after you sign into Sharepoint.
Make sure you sign up before Jan. 1, 2023, to receive your 2022 1095-C electronically and before Jan. 13, 2023, to receive your 2022 W-2 statement electronically.
Three great reasons to go paperless
Going paperless is safe and convenient — and it can even save you money. Here are three great reasons to update your preferences today:
- Convenient and secure: Your tax forms and paycheck can't get lost in the mail, stolen or misplaced.
- Ready when you are: Your tax forms are easy to access as soon as you're ready to file your taxes, and your money is in your account as soon as you get paid.
- An opportunity to save: Many banks offer incentives for using direct deposit.
Protect your data
To access your electronic 1095-C and W-2 statements, always go directly to UCPath using a safe, known link.
UC does not send tax statements to employees by email or text. If you receive an email or text that has a link or an attachment for viewing your tax forms, it is a phishing scam designed to gain your private information. Do not open any attachments or click on any email links that claim to give you access to your tax forms.
Have questions or need help?
Please visit UCPath and click on “Ask UCPath Center” to submit an inquiry. You may also call the UCPath Center at 855?982?7284 from 8 a.m. to 6 p.m. (PDT) Monday–Friday and speak with an associate.
Here are some important reminders and announcements related to your 2020 pay, taxes and benefits — some that may require action. Read closely and mark your calendar for upcoming deadlines.
Jan. 15, 2021: Tax information deadline
UCPath begins processing W-2s in late January. To ensure the information on your W-2 is complete, accurate and reaches you, please take the following steps by January 15.
· Verify your personal email and home address in UCPath online. Even if you opt for a digital W-2, it's important that UC can reach you (https://ucnet.universityofcalifornia.edu/news/2020/06/take-charge-of-your-benefits-on-ucpath-online.html) .
· Verify your dependents. The Affordable Care Act (ACA) requires UC to make reasonable efforts to obtain Social Security numbers for employees, their spouses/domestic partners and dependents. To review or update your information, log in to UCPath online (https://ucpath.universityofcalifornia.edu/) , then select Employee Actions > Health and Welfare > Dependent Coverage.
· Opt-in to an electronic W-2. Online W-2s are easy, secure and oh-so-convenient! To sign up, log in to UCPath online (https://ucpath.universityofcalifornia.edu/) , then select Employee Actions > Income and Taxes > Enroll to Receive Online W-2.
· International workers: Verify your GLACIER account information. International employees may receive a W-2 or 1042-S (Foreign Person's U.S. Source Income Subject to Withholding). To ensure your tax information is sent correctly, verify that your personal email and home addresses match exactly in UCPath online and the GLACIER tax database. You may also opt to have an electronic 1042-S through GLACIER. Learn more about Form 1042-S (https://www.irs.gov/forms-pubs/about-form-1042-s).
2020 W-2 statements
Now that we have been in UCPath for more than a year, UCANR employees who have been with us for all of 2020 will receive only one W-2 statement from UCPath. Employees who have transferred from a UC location who was not on UCPath for all of 2020 will receive more than one.
Important security reminder
UC does not send W-2 statements by email or text. If you receive an email or text with a link or an attachment for viewing a W-2, it is a phishing scam designed to gain your private information. Do not open attachments or click email links that claim to provide access to your W-2. To access your electronic W-2, always go to UCPath online (https://ucpath.universityofcalifornia.edu/) using a safe/known link.
Federal and state earned income tax credit (EITC or EIC)
· Per the Earned Income Tax Credit Information Act, UC includes a notice with all Form W-2 statements notifying employees that they may be eligible for the federal EITC. This is a benefit for working people with low to moderate-income. To qualify, you must meet certain requirements (https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/use-the-eitc-assistant) and file a tax return, even if you do not owe any tax or are not required to file. EITC reduces the amount of tax you owe and may give you a refund. For more information about the federal EITC, reference IRS Notice 797 (https://www.irs.gov/pub/irs-pdf/n797.pdf) or contact the Internal Revenue Service at (800) 829-3676 or via www.irs.gov (http://www.irs.gov/) .
· You also may be eligible to receive the California EITC, starting with the 2015 tax year. The California EITC is a refundable state income tax credit for low-income working individuals and families. It is treated in the same manner as the federal EITC and generally will not be used to determine eligibility for welfare benefits under California law. To claim the California EITC, even if you do not owe California taxes, you must file a California income tax return and complete and attach the California EITC Form (FTB 3514). For information on the availability of the credit, eligibility, how to obtain necessary forms and help filing, contact the Franchise Tax Board at (800) 852-5711 or via www.ftb.ca.gov (http://www.ftb.ca.gov/) .
Claiming exemption from withholding
The IRS requires you to complete a new W-4 form each year if you are claiming exemption from tax withholding. If you wish to claim exemption from withholding in 2021, you must make this choice on UCPath online (https://ucpath.universityofcalifornia.edu/) before Feb. 15, 2021.
Have questions or need help?
Log in to UCPath (http://ucpath.universityofcalifornia.edu/) and select Ask UCPath to submit an inquiry. You may also call UCPath to speak with an associate at (855) 982‐7284 from 8 a.m. to 5 p.m. (PDT) Monday through Friday.
- Author: Pamela Kan-Rice
UCPath begins processing W-2s in late January. To ensure the information on your W-2 is complete, accurate and reaches you, please take the following steps by Jan. 15, 2021.
- Verify your personal email and home address in UCPath online. Even if you opt for a digital W-2, it's important that UC can reach you.
- Verify your dependents. The Affordable Care Act (ACA) requires UC to make reasonable efforts to obtain Social Security numbers for employees, their spouses/domestic partners and dependents. To review or update your information, log in to UCPath online, then select Employee Actions > Health and Welfare > Dependent Coverage.
- Opt-in to an electronic W-2. Online W-2s are easy, secure and oh-so-convenient! To sign up, log in to UCPath online, then select Employee Actions > Income and Taxes > Enroll to Receive Online W-2.
- International workers: Verify your GLACIER account information. International employees may receive a W-2 or 1042-S (Foreign Person's U.S. Source Income Subject to Withholding). To ensure your tax information is sent correctly, verify that your personal email and home addresses match exactly in UCPath online and the GLACIER tax database. You may also opt to have an electronic 1042-S through GLACIER. Learn more about Form 1042-S.
Important security reminder
UC does not send W-2 statements by email or text. If you receive an email or text with a link or an attachment for viewing a W-2, it is a phishing scam designed to gain your private information. Do not open attachments or click email links that claim to provide access to your W-2. To access your electronic W-2, always go to UCPath online using a safe/known link.
For information on the Federal and State Earned Income Tax Credit and claiming exemption from withholding, visit the UCPath website.
- Author: Myriam Grajales-Hall
Tax Day is an appropriate time to underscore the fact that unauthorized immigrants pay taxes. To do just that, the Immigration Policy Center published a brief showing the contributions these immigrants make as taxpayers.
According to the Department of Homeland Security estimates, 60 percent (three-fifths) of the unauthorized population was from Mexico as of 2010. The other top countries of origin were El Salvador (6 percent), Guatemala (5 percent), Honduras (3 percent), and the Philippines (3 percent)
The unauthorized, like everyone else in the United States, pay sales taxes. They also pay property taxes—even if they rent. At least half of unauthorized immigrants pay income taxes. Add this all up and it amounts to billions in revenue to state and local governments. The Institute for Taxation and Economic Policy (ITEP) has estimated the state and local taxes paid in 2010 by households that are headed by unauthorized immigrants. These households may include members who are U.S. citizens or legal immigrants. Collectively, these households paid $11.2 billion in state and local taxes. That included $1.2 billion in personal income taxes, $1.6 billion in property taxes, and $8.4 billion in sales taxes.
The states receiving the most tax revenue from households headed by unauthorized immigrants were California ($2.7 billion), Texas ($1.6 billion), Florida ($806.8 million), New York ($662.4 million), and Illinois ($499.2 million).Source: Immigration Policy Center, “Unauthorized Immigrants Pay Taxes, Too,” April 18, 2011.