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forest economy
Welcome to your home for determining how to manage your financial resources of your forest investment. Learn about methods of forest valuation, trends in forest economics, recent developments in forest taxation and important links to forest tax issues. Discover how to keep accurate records through faster and more accurate record keeping practices. Also find out about seminars and training opportunities for you and your colleagues in these and related issues.
forest finance
nterest is a concept absolutely critical to our understanding of forestry finance. Conceptually, interest is a measure of the time value of money. "What are you willing to give up now in favor of money in the future?" determines your preference to invest money now. If the bank pays you 3% interest on a savings account and you invest money in that account then you have a very low time preference for money now versus later. Conversely, if you borrow money from the bank at 12% interest, then that defines that you have a preference for current consumption over future consumption at a rate of at least 12%.
forest taxation
Forest and timber taxes are a fact of life in the US and other countries. In this section of the My-Forest.com web domain we will explore the mechanics of how you can manage your forestland investment to take advantage of the US federal tax code. You will learn how to set up your original basis after purchase of the property, how to allocate your investment between the various assets of land, timber, equipment, and depreciable real property investments. From there we will explore how your depletion allowance is calculated prior to a timber sale and how your income is treated for tax purposes.
In order to assist you further, we have taken the complicated tax codes of the US IRS and made them easy to understand with on-screen calculations of your most difficult tax calculations. Explore our tax resources!
This section of our web site is a combination of My-Forest.com and the highly rated Foresttax.com, now brought together into the same web domain. Offering you the most for forestland tax management!
timber taxes
t is wise to write, maintain, and update a forest management plan for your woodlands to document your management intentions and actions both silviculturally and financially. For state and federal tax purposes an estimate of expected future profits in the forest management plan is rec-ommended. Accurate record keeping is essential for all forest landowners. Start keeping records when you first acquire forest land. Keep records of pur-chase price as well as costs of acquisition. These costs include timber cruises, property surveys, attorney fees, and other money spent to acquire the property.
forest accounting
It is wise to write, maintain, and update a forest management plan for your woodlands to document your management intentions and actions both silviculturally and financially. For state and federal tax purposes an estimate of expected future profits in the forest management plan is rec-ommended. Accurate record keeping is essential for all forest landowners. Start keeping records when you first acquire forest land. Keep records of pur-chase price as well as costs of acquisition. These costs include timber cruises, property surveys, attorney fees, and other money spent to acquire the property.
My-forest
Tax provisions allow taxpayers who meet the requirements to claim capital gains status if operations are classified as either a trade, business, investment, or personal use. The 1986 Tax Reform Act equalized federal income tax rates for ordinary income and long-term capital gain income. A differential was reinstated in 1991 when ordinary income tax rates increased to 31% of income, but capital gain income was capped at 28%. The differential widened in 1993 when a 36% and 39.6% ordinary income tax rate was enacted, but capital gain income was still capped at 28%. The Taxpayer Relief Act of 1997 lowered the capital gains rate to 10% for taxpayers in the 15% tax bracket and 20% for those in the 28% or higher bracket. The effective date is for assets sold after May 6, 1997.
discount rate
One of the basic challenges we are faced with in any business investment situation is the appropriate discount rate to use in determining the profitability of projects. Often, we derive this rate by looking for something comparable to other investments of similar risk and longevity. However, this comparison is complicated when some investments are adjusted for inflation while others are not. In other instances some investments may be listed before taxes have been levied, while others have not been. This makes direct comparisons very difficult, but not impossible.
Before we look at the idea of moving between tax rates and inflation we need to have a brief discussion of Effective Annual Interest Rates and Nominal Annual Interest rates. It is standard practice to specify interest rates in annual terms. However, when interest is compounded in continuous, daily, monthly, or quarterly terms, but presented in annual terms, a question arises as to the meaning of the annualized rate. We need a mechanism to deal with this. When the annual rate is calculated by multiplying the periodic rate by the number of interest bearing periods per year, it becomes the nominal annual rate. The rate at which it is actually earned or paid is called the effective annual rate. Nominal interest is the annual interest rate without considering the effect of any compounding. Effective interest is the annual interest rate, taking into account the effect of compounding during the year.
real price appreciation
We have devoted a lot of space on this web domain developing an understanding of some tools to be used in financial decision making in forestry. Now we must be able to define a procedure to use these tools to arrive at decisions that are supportable in terms of what we, or our clients, want.
Russell Ackoff noted in The Art of Problem Solving, that there are 5 fundamental steps to solving a problem. In order they are:
(1) Define the group facing the problem
(2) Determine what variables are present to the problem that you can change
(3) Determine what variables are present to the problem that you cannot change
(4) Define the constraints that you must operate within (real and assumed)
(5) Develop the available solutions
If you can approach each decision making opportunity with this order of consideration, you will come to the same type of solution that the famous fictional character Sherlock Homes immortalized, "Once you have eliminated the impossible, whatever remains, no matter how improbable, must be the answer."
In the forestry world, we will develop these financial decision making tools into types of analysis that will be useful to compare projects of different lengths, input and output levels, different rates of return, and some that are even more difficult to ascertain such as comparing commodity and amenity output projects. There are a few tools that will help us do these things.
1) Net Present Value (NPV)
2) Equal Annual Equivalent (EAE)
3) Rate of Return
a. Internal Rate of Return (IRR)
b. Composite or Realizable Rate of Return (RRR)
4) Benefit Cost Ratio (B-C ratio)
Financial analysis in forestry lends itself to making assumptions and setting certain variables as we see reasonable. This is the skill portion of financial decision making in forestry. However, we need to develop the procedure to follow in order to guarantee that our recommendations are based on the best information available, are affordable decisions (we do not spend all of the profits deciding what to do), and that our decisions are repeatable. That last criteria means that others could look at the same set of facts and come to the same outcome.
forest landowner
How much is my forest worth? How much would I have to sell my timber for in order to make 7% on the investment? How can I determine the value of my land just based on its ability to raise timber? I am thinking of borrowing some money to by some property, how much would my monthly payment be on the loan?
These and hundreds of other questions are common amongst forest landowners when trying to better understand their financial investment in their forestlands. Well, finally there is a place to begin to understand this complicated world of forestry finance; and here it is. This Financial Decision Tree is a useful flow chart in determining which formulae to use to calculate the values you are looking for. If you click on the chart to the right it will open a PDF file containing the Forestry Financial Decision Tree, print out a copy and keep it handy.
We have also included the entire decision process on this web page. If you click the "Decision Engine" below, it will walk you through a series of questions leading you to the appropriate decision formulae. Once you get there, you can enter in your variables and see the results on the web page! The technology of the Internet continues to give us amazing results..
forestland owner
It is standard practice to specify interest rates in annual terms. However, when interest is compounded in continuous, daily, monthly, or quarterly terms, but presented in annual terms, a question arises as to the meaning of the annualized rate. We need a mechanism to deal with this. When the annual rate is calculated by multiplying the periodic rate by the number of interest bearing periods per year, it becomes the nominal annual rate. The rate at which it is actually earned or paid is called the effective annual rate. Nominal interest is the annual interest rate without considering the effect of any compounding. Effective interest is the annual interest rate, taking into account the effect of compounding during the year.
The nominal interest rate is very easy to calculate. We multiply the periodic rate by the number of periods per yea
links in forestry
My-Forest.com links to other pages on the topic of forest business and timber taxes. Explore these sites for more information but please remember to come back. These links are provided here without fee to the target sites. Please remember to come back by bookmarking our site before you leave.
forest economy
forest finance
forest taxation
timber taxes
forest accounting
My-forest
discount rate
real price appreciation
seminars
forest landowner
forestland owner
links in forestry
Welcome to your home for determining how
to manage your financial resources of your forest investment. Learn about
methods of forest valuation, trends in forest economics, recent developments
in forest taxation and important links to forest tax issues. Discover how
to keep accurate records through faster and more accurate record keeping
practices. Also find out about seminars and training opportunities for
you and your colleagues in these and related issues.
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