Article
Five tax and estate planning opportunities for the forest products industry
Sept. 8, 2020 · Authored by Ryan Kuenzi, Chris Hansen
A version of this article was previously published in the Aug. 3, 2020, edition of the Portland Business Journal.
A flood of information has circulated since the start of the COVID-19 pandemic, which can make it challenging to identify strategies that could have a positive impact on your business.
While the pandemic isn’t the first business disrupter you’ve faced, it does provide an opportunity to reassess your tax landscape. At the end of the day, the goal is to establish a business and personal planning process that balances the need for current cash flows with long-term planning obligations and opportunities.
Tax considerations
Following is a list of five tax considerations for companies in the forest products industry. These strategies include utilizing COVID-19-driven tax stimulus legislation as well as existing opportunities that might have slipped from your radar.
1. Tax loss carrybacks
Many companies have periods of net operating losses (NOLs) mixed with periods of income. Forest products companies frequently face the ups and downs of construction, export, and log markets. One year may yield high levels of taxable income, while the next year results in a significant tax loss.
Tax reform in 2017 dictated that NOLs couldn’t be carried back. This was amended in the CARES Act passed in early 2020. Now, companies can carryback net operating losses incurred in 2018, 2019, and 2020 for up to five years.
If you or your company had tax liability between 2013 and 2017 and generated tax losses in 2018, 2019, or 2020, a carryback could be especially helpful because the maximum federal tax rate through 2017 was 39.6% for individuals and 35% for corporations. Further consideration should be given to your selection of tax methods, such as bonus depreciation, as you assess the opportunity from loss carrybacks.
2. Evaluation of timber depletion pools and timber gain planning
Your approach to timber depletion is one of the more significant planning areas to garner potential tax savings or deferrals. Various methods can be used to recover the cost basis of your investment in timber assets. The recognition of these expenses for accounting and tax purposes occurs as the timber is harvested.
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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.