Today TaxMama hears from Dan in Texas who tells us, “My neighborhood just completed oil/gas lease with a local oil company. I am trying to find out information on the tax rate that I will facing at the end of the year on the bonus and the royalties.”
However much you earn from these lease royalties, you will pay tax on the income at your normal tax rate.
You will get a 1099 at the end of the year showing the amount of the lease income. Report that amount on a Schedule E, included with your personal tax return.
However, I have a bit of good news for you. You are also entitled to take a special deduction on
your Schedule E for depletion. Probably. Read chapter 9 of IRS publication 535 – Depletion,
in particular, the information related to Oil and Gas Wells.
Then, find a tax professional in your area who has expertise dealing with oil and gas depletion. They may know of other tax benefits you can get. At least the first year, don’t do this tax return alone. Enjoy the extra income.
And remember, you can find answers to all kinds of questions about oil and gas and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- IRS Publication 535 :: Chapter 9 – Depletion