untaxed income...how will it affect my taxes this year?

Question

I recently had timber harvested off my land, and I made right at $10,000. It was not taxed, but I know I'll have to claim it come tax time. However my other income for the year has only been about $2,000 (I am now a stay-at-home-mom, and we have 1 dependent!) and my partner's income for the year will be under $20,000. Probably more like $13,000. Are we going to wind up paying in a buttload of taxes this year because of the timber sales? What would be a way to avoid this (filing separately, etc)?

Answer 1

I assume you are not married. You cannot file a joint return.

Your gain on the sale of the timber is long-term capital gain (assuming you have owned the property for more than one year). The maximum you can be taxed is 15%. The gain is computed from the basis of the timber, which depends on how much you paid for the property and when you acquired it. Your taxable gain will not be the full $10,000. It may be considerably less.

If your partner is a parent of the child, I suggest your partner file as single with the child as a dependent. There will be no taxed owed, and your partner will get a sizeable refund due to the Child Tax Credit (if your child is under 17) and the Earned Income Credit (if your partner's income is earned income).

You should file as single. You will pay a few hundred in taxes at best. It would not benefit you to claim your child, since most of your income is not earned income and therefore you would not get much Earned Income Credit.

If you want, your partner could also file as Head of Household if he paid over half the cost of keeping up the home. The difference in refund is minimal.

If you are married, then just file a joint return. Unfortunately, you will not qualify for the EIC since you together have too much unearned income. If you both file as married filing separately, you still lose the EIC and probably will pay more tax than if you filed together.

Answer 2

First thing you should do is find a good cpa/tax preparer. With the $10,000 in timber sales you should be able to take some of the cost of the land from when you bought the property as your basis for the timber. Also, if the 1 dependent is yours, then you can file as head-of-household. if the child is also your partner's then you should figure out which one of you would be better of with claiming the child as a dependent. The things that you are not being clear about is what type of income is your $2,000 (is it self-employment income?) and what type of income is your partner's? (again, is it self-employment income?). Don't know what state you live in, so don't know if you have state tax issues or not. Timber sale though for you would be capital gain income reported on schedule D.

Answer 3

Well, you'll pay some tax on the timber. There are some special tax rules for timber - it might be worth your while to consult a CPA. This is NOT an item to take to somebody like H&R Block.

You mention a partner, then ask about filing separately. If you aren't married to each other, then you don't have a choice - you are not allowed to file a joint return. Having a child together doesn't change that.

With income that low between you, you shouldn't get hit too badly on taxes. And whoever claims the child might be able to get EIC. The timber sale wouldn't count toward EIC, so your partner should probably claim the child if he is the biological parent.

Answer 4

If you and your partner are married, file jointly.
If you and your partner are not married, one of you can claim the child and be head of household.
Given the low amounts of money you have earned, I doubt that you would have too much to pay in. BUT that would depend upon whether your other income has had taxes withheld from it or not.
Based upon 2006 information . . . Assuming you are married, your total income will not exceed $32k (10k timber, 2k your income, 20k partner income).
Lets do the math. Assume you take the standard deduction and only have your personal exemptions (VERY BASIC):
Married Filing Joint Std Deduction = $10,300
exemptions 3 @ $3,300 = 9,900
Taxable income would be $11,800
Your tax would be $1,183
So long as you and your partner paid in more than $1,183 from your incomes you would not owe money.
This scenario does not take into account the following, which would further lower your taxes: child tax credit (don't know if your dependent qualifies or not, but probably would if you are a stay-at-home mom), earned income credit, itemized deductions, deductions relating to growing the timber that was harvested.

Answer 5

Untaxed income goes on the top and is taxed at the top taxrate. If you have a dependent and have a mortgage you might still qualify for the lower tax rate which is 15%. At least you will have to pay 1,500 on the money you made. The tax bracket for the next jump with married and one dependent is around 60,000. There are a lot of factors that might lower this estimate such as dependent, health care, and business espenses. Best to see a tax professional but always try to put aside 20% of the money for possible taxes. Another way to look at it is if you received a refund last year you will receive 1,500 less of a refund. Good Luck. Go to a professional if they can help.

Answer 6

We did that one year and my husband worked for the same company but it was in 2 different states. We had to do both states for taxes. If they hold out taxes for the state that you now live in - you will have to do the same. Just check with the IRS, they can tell you.