This one simple mistake on a Christmas tree grower’s or forest landowner’s tax return could result in losing thousands of dollars.
Many mistakes in growing Christmas trees, raising timber, and even preparing taxes can be fixed after the fact.
Harvested too many Christmas trees? Plant more seedlings next year or purchase pre-cuts from another grower.
Have an insect or disease problem? Treat the trees, which often saves them from further damage.
Forgot to deduct some expenses on your tax return? File an amended return to claim the additional expenses and receive a refund.
Now, what is this irreversible mistake?
Not making a timely capital gain election per IRC § 631.
Why a Timely Election is Critical
An “average” Christmas tree grower can save over $27,000 by making a capital gain election. Forest landowners will also frequently save thousands by electing capital gain treatment on their timber sales.
If applicable, most Christmas tree growers and forest landowners should make a capital gain election on their tax return. A capital gain election often significantly reduces taxes through a lower tax rate and less self-employment tax.
However, capital gain treatment under IRC § 631 must be timely elected on an original tax return and may not be elected on an amended tax return. A Christmas tree grower’s or forest landowner’s original tax return must correctly elect capital gain treatment, otherwise thousands of dollars in tax savings will be lost.
What is Considered a “Timely” Election?
An original tax return includes a return timely filed after an extension.
However, an amended tax return is not an “original return.
If a Christmas tree grower or forest landowner reports their business income on their personal tax return, they may elect capital gain treatment by either filing their tax return by April 15th, or filing an extension by April 15th and then filing their tax return by October 15th.
A Christmas tree grower or forest landowner who reports their business income on a separate entity return (such as a corporation, s-corporation, partnership, or trust) must elect capital gain treatment on the original entity return by the original or extended due date.
What a Christmas tree grower or forest landowner may not do is file their tax return and then file an amended tax return to elect capital gain treatment. Amended tax returns may be filed to correct other errors, but not failing to make a capital gain election under IRC § 631.
Consider Professional Help
Due to the possibility of costly errors, a Christmas tree grower or forest landowner should use a knowledgeable Christmas tree or timber CPA because of the potential to lose thousands of dollars by not properly electing capital gain treatment. A Christmas tree grower or forest landowner cannot afford to make this mistake even once!
Need help electing capital gain treatment? Contact Andrew to learn more!
