GETTING THE MOST OUT OF YOUR PROPERTY
By Rick A. Lucas Conservation District Forester

As a follow-up to my last article, I would like to provide you with a little more food for thought through the winter months regarding activities that can be applied to your private lands. As more forest health issues relative to invasive plants, insects and diseases come into the picture, greater responsibility falls into the hands of the private landowner to monitor their property for the presence of these pests. It is a good practice to get in the habit of watching for needle and leaf discoloration, missing foliage, shoot and branch injury, and/or shoot and branch galls on your trees. When any of these signs appear, collect a sample and bring it to your local Conservation District, DNR or MSU-E office for identification and control recommendations. The same holds true for monitoring for invasive plants with a few precautions.

For several years now, non-native, invasive plant species have been studied to determine their impacts to our native flora and fauna. As a result of these studies, a list of non-native (exotic), invasive plants referred to as “Serious Invasive Plant Threats to Michigan Woodlands” has been identified. These plants are known to aggressively invade forest communities and replace native species. Among a few of these identified plants are garlic mustard, Japanese barberry, giant hogweed, buckthorn and autumn olive. These plants may not represent a threat on every site, and must be evaluated by a professional who can make that assessment. As a landowner, you are encouraged to learn more about these invasive plants. It would be a good practice to regularly monitor your woodlands for the presence of these invasive species. If any of these invasive species are detected, contact your local Conservation District or MDNR Service Center so a certified professional can evaluate the site to determine the most efficient means of control.

Of the invasive plants cited above, giant hogweed should be handled with great care and caution. Direct contact with hogweed’s leaves or stems can blister your skin. Glucoside photo toxins in the plant’s clear, watery sap react with sunlight to cause painful blisters. Familiarize yourself with these invasives before taking action.

One of the more common and fun spring activities for many landowners is planting trees and/or shrubs on your property. The artificial planting of trees and shrubs allows you the opportunity to select the species, size and shape of planting that best suits your long-term objectives. Other factors that need to be considered include; soil moisture and texture, soil type, weed and grass control, protection from browsing deer and gnawing rabbits and mice, the availability of seedlings and the availability of financial resources to purchase the seedlings to cover the cost of establishment.

One of the best ways to understand whether your choices will be successful is to observe how those same species grow on other properties in your local area. Also, check the grass and weed situation. If the site supports a heavy weed and grass cover, it can grow either hardwoods or conifers. If the site can’t grow much of a weed or grass cover, it won’t grow hardwoods very well, either. In that case, conifers would be better suited to your site.

Personally, I have always been a little partial to those who plant trees, mainly because I enjoy the activity so much myself. Planting trees and shrubs is a great way to give something back to our environment. And, it doesn’t matter if you’re planting one tree or thousands of trees, every effort makes a difference.

Many private parcels contain old and neglected fruit trees. It is important to recognize the role that fruit-bearing trees play in terms of their value to wildlife. Where you have old apple trees on your property, save them! When they occur on your property, a little maintenance goes a long ways in contributing to your wildlife management objectives.

Most fruit producing trees and hard-mast producing trees (oaks, beech, hickory, etc.) will benefit from a release thinning. Fruit trees provide food for a wide variety of Michigan’s wildlife. For example, white-tailed deer feed heavily on apples in the fall. Other animals that benefit from fruit trees include the black bear, songbirds, and small mammals. Also, as the fruit decays on the ground, it creates an environment that is favorable for the presence of earthworms, which is why woodcock can sometimes be seen feeding under fruit trees.

Old, decadent fruit trees can be found in abandoned fields or young forests. Over time, as other trees grow and shade these fruit trees, fruit production can be greatly reduced. Fruit trees are often still viable, and with a little attention can be returned to fruitproducing condition. “Releasing” these trees may be necessary, especially if a young forest has grown over and around them. Fruit production is very dependent upon light. Removing other trees that are shading the fruit trees will help eliminate competition for sunlight. Additionally, if the trees are not bearing well, you can rejuvenate them with proper pruning. Do your pruning in the late winter or early spring.

Also, you can always plant additional fruit trees on your property. Plant them in the sun near the woods, which thus can be used for handy escape cover for wildlife. The edge or corner of a field or pasture is good, or an odd area such as a steep hill. Special consideration to providing protection to the trees to prevent deer, rabbits, mice, voles and other critters from damaging the trees following planting is necessary to insure establishment.

Keeping good records of activities performed on your property is a must. The records you keep should reflect your forest management goals and objectives. Timber production involves long-time periods and keeping records in a systematic fashion will help you remember activities that happened years ago. Furthermore, maintaining a historical record of forest management activities will assist you in making better informed decisions, and hopefully save you money in the long run. Keeping records is not only financially prudent, but results in more effective management. Good record-keeping helps you to: document your forest’s history; monitor and track management activities; allocate funds, resources, and management activities; and provide information for tax purposes.

Lastly, keeping records for your property is easiest when it is a prescribed activity outlined in your forest management plan. Most every forest management plan will include: a thorough description of your property and the resources found on it; a specific list of goals and objectives for managing the property; and, a schedule of activities to be performed on the property to help realize your goals and objectives. Encouraging more private forest landowners to develop a management plan for their property remains a priority amongst natural resource management officials throughout the state.

By the time you read this article, we will be on the backside of winter. Plan now to get the most out of your land starting this spring.

TIMBER TAX TIPS
MAKE SURE YOU RECEIVE THE CORRECT 1099 FORM
By Jim Burns

You received income this year for selling cutting rights to some of the timber on your land. Having read my prior articles, you want to report this income correctly, as capital gain, and save a large amount of money on your federal and state income taxes. One more obstacle to achieving this goal may be heading your way.

In a matter of weeks, you will probably be receiving a 1099 from the timber buyer, listing the amount of money you were paid during the year. The IRS has had a program in place, for some time, requiring loggers and other timber buyers to report these payments on Form 1099. But which 1099? Based on my experience, this point needs clarification because most of my timber tax clients were issued the wrong 1099 Form.

The correct form is 1099-S for real estate transactions. Real estate transactions, you ask, how can that be? Well, begin by reading the instructions for Form 1099-S and you will find under the list of “Reportable Real Estate” – Timber Royalties.

This is explained by the fact that standing trees attached to the soil are legally defined as Capital Assets under the United States real estate law. These laws were inherited from English Common Law which was developed a few centuries ago. Our federal income tax laws have always recognized this fact and allow income from the sale of timber (trees) to be reported as Capital Gain for tax purposes.

Many loggers and their accountants don’t understand this and report stumpage payments (timber royalties) on Form 1099 – MISC. This causes real problems for the landowner at tax time. This form is specifically for Ordinary Income. The result of doing this ensures that the sale of a capital asset automatically gets reported and taxed at the higher ordinary income tax rates. In addition to this, the landowner will have to pay the 15.3% self-employment tax into Social Security.

The only way to correct this error is to file an amended return to get a refund of the over-payment. Unfortunately, many landowners and their tax preparers do not understand this either and never correct the situation. One experience of paying these exorbitant taxes discourages many landowners from selling any more timber in the future, which also has a negative ripple effect. They talk to their neighbors and other timber owners. This is not good for encouraging proper forest management.

Normally, loggers make a down payment plus a security deposit to the landowner in the year they sign the timber sale contract. The security deposit is not income and should not be reported on any 1099. This deposit is to guarantee performance and compliance under the terms of the contract and does not become income until it is retained for some breach of the agreement, otherwise it is refundable.

The down payment is known as an advance payment for stumpage. Under Section 631(a) of the tax code, the sale of timber is reportable as income for tax purposes in the year that the volume of timber is actually cut and scaled, not when money is received.

In many cases the landowner will receive an advance payment for stumpage in one year, say 2009, but no timber is actually cut and scaled until 2010. In that case, the advance payment should be accrued into 2010 and reported as income for tax purposes in that year.

A 1099-S will make the IRS aware that a timber transaction took place and allow you to do this.

Conversely, a 1099-MISC sends a signal to the IRS that this is ordinary income in 2009 and had better show-up on the tax return for that year. When any of my clients is faced with this situation, I provide them with a letter explaining the tax law for attachment to the 1099 received and their income tax return. If they don’t, they will start getting nasty letters from the IRS around July of the next year and will have a new pen pal for quite awhile.

After writing this series of articles, I can hear the skeptics out there wondering if the extra work involved in reporting timber income as capital gain is worth the expense. “After I pay for the appraisal needed to set-up a depletion account and prepare Form T, I’ll probably only save a few dollars in taxes; right?” WRONG!

The savings on your federal income taxes alone will be in the thousands of dollars. As an example, I went through client returns for the past year to itemize actual results for capital gain using a depletion deduction versus ordinary income reporting. The only returns I used were for small-acreage landowners reporting under IRC Section 631(b).

Individually, gross sales were in the range of $2,012 at the lowend and $63,000 at the high-end, with an average sale value of $23,056. Reported as ordinary income, the federal tax including selfemployment tax that would have been due, averaged $7,898.

Reported as capital gain income, 30% of the returns had a loss for taxes and 70% had a gain after the depletion deduction. The landowners with a loss, paid no tax on the timber income plus sheltered an average of $9,643 of other income from taxes for an average of $15,326 in net tax savings, after paying for the timber tax preparation.

After paying for the timber tax preparation expense, the landowners that had a capital gain tax due, averaged a savings of $5,680 on their federal bill. This range of savings is normal, so I would say that it is worth some extra expense to save that kind of money.

Be pro-active about your 1099. Tell your timber buyer to send you a 1099-S or if you already received a 1099-MISC, ask them to void it and issue a new, corrected 1099-S. It’s your money!

Jim Burns is a professional forester who owns and operates Burns Timber Tax Services and works in conjunction with Susan Metcalfe at Metcalfe Forestry LLC. For more information, call Susan at (989) 348- 3596 with your questions. www.metcalfeforestry.com metcalfetimbertax@hotmail.com

FOREST INVENTORY
By Bill Cook MSU Extension Service Forester

How is it that foresters know how much forest is in Michigan?

The data come from an inventory system that has been ongoing in Michigan since 1935. Collection of that data involves lots of field sampling and statistics. There are no better data sets to describe Michigan’s forest resource.

Statewide periodic inventories were published in 1935, 1955, 1966, 1980, and 1993. In 1999, the inventory was “annualized” with a fifth of the plots remeasured each year. The 2004 report covers the years 2000- 2004, which became available in 2009.

So, if you want to know about Michigan’s forests, you can obtain a copy of the 210 page report filled with maps, charts, trends, and descriptions. It’s U.S. Forest Service “Resource Bulletin NRS-34, Michigan’s Forests 2004”. You can also find the report on-line at [ http://nrs.fs.fed.us/ pubs/7396].

What does the report tell us? Lots of things, with lots of definitions.

For example, what is the most common tree in Michigan? If you include saplings, then the answer is balsam fir. If you include only trees with a diameter larger than five inches, then the answer is sugar maple, with balsam fir at number eleven.

Which species are most harvested, by volume? Quaking aspen, sugar maple, and then red maple. Which species have the most amount of annual growth? Red maple, sugar maple, and red pine. Which have the highest natural mortality? Quaking aspen, balsam fir, and American elm.

The average diameters have increased since at least 1966 for most major tree species. Michigan has more sawtimber sized trees than it has had over the last 40-50 years, especially on national forests.

The first portion of the report illustrates many forest descriptors. Forests have many important aspects, such as area, various volumes, size classes, stand composition, age, number of trees, ownership distribution, and species statistics. Who’s the largest owner of Michigan forest? The State of Michigan. Who’s second?

The second portion of the report addresses the ever-changing aspects of forests. Forests are not static entities. They are constantly changing for many reasons. Ownership patterns have a particular strong influence on forest change. Nearly half the forest in Michigan is owned by private, nonindustrial individuals and groups. This ownership experiences a lot of turn-over and that rate is expected to accelerate over the next ten years.

The third portion talks about forest health, including soils, coarse woody debris, carbon stocks, standing dead trees, invasive species, and highlights several damaging agents. As you might expect, high profile pests are given special attention, such as emerald ash borer, beech bark disease, gypsy moth, and jack pine budworm.

The final portion describes forest product outputs, supporting a 12 billion dollar industry and employing about 150,000 people. Over half the harvest was pulpwood products, with about 40 percent of the total harvest from the northern Lower Peninsula. Most of the Michigan harvest was processed in Michigan. Wisconsin and Indiana are our largest trading partners. Between 2000 and 2004, Michigan lost about 60 wood-using mills, about 19 percent of the 2000 total. Most of these losses were small and medium sized sawmills.

Of course, much has changed since 2004 and those recent changes will be reflected in the next five year report. Major mill closures in the northern Lower Peninsula and the western Upper Peninsula will impact the level of management in regional forests. Without markets, you can’t sell wood. Without removing trees, there isn’t much forest management possible. Without management, fewer benefits from the forest will be realized and forest health is at higher risk. So, a forest inventory provides answers to many fundamental questions.