The Impact of Federal and State Income Taxes on Timber Income in the South Following the 1986 Tax Reform Act

Abstract

Abstract The 1988 federal and state income tax liabilities for hypothetical forest landowners in two federal income tax brackets, each with and without timber sale revenue, were calculated for the 14 southern states. At the medium income level, the state portion of total income tax liability(without timber sale revenue) ranges from 9% in Louisiana to 20% in North Carolina. With timber sale revenue, it ranges from 7% in Louisiana to 17% in North Carolina. At the high income level, the state portion of total income taxes (without timber sale revenue) ranged from 7% in Louisianato 16% in North Carolina, and with timber sale revenue, from 6% in Louisiana to 15% in North Carolina. Capital gains exclusions, deductions for federal income taxes, tax rates and schedules, standard deductions, and personal exemptions are the most important provisions for reducing state incometax liability. The installment sale method of reporting income was used as one alternative tax planning strategy for spreading timber sale revenue over a 2-year period. The purpose was to smooth cash flows and reduce the amount of income subject to higher marginal tax rates. Georgia taxpayerselecting the installment sale method of reporting in a hypothetical case saved $1,203 and $585 in total income taxes for the medium and high income levels, respectively. South. J. Appl. For. 13(4):196-203.