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Permalink Reply by Kathy Morgan on August 14, 2009 at 12:03

Unfortunately, as you probably know, the LLC and S-Corp are both "pass-through" entities. So anything they "get" passes through to you for taxation at your regular tax rates. You could do a C-Corp and be the sole shareholder or you could do active interest instead of passive royalty only interest. This would allow more deductions, but the down side is the tax rates for corporations is probably higher in the long run (federal and state) then your regular tax rates are. Make sure your tax professional is taking the depletion and taxes off your royalties. If you are talking a large amount of money you definately need to sit down with a tax pro and go over the specifics.

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Permalink Reply by Parkdota on August 14, 2009 at 15:16

Thanks so much. I'm going to definitely look in to what you said. :)

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Permalink Reply by kevin jones on August 14, 2009 at 16:24

IF YOU HAVE KIDS TRANSFER SOME OF YOUR ROYALTY TO THEM. AND IF YOU DONT WONT THEN TO SPEND THE MONEY SET IT UP IN A TRUST

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Permalink Reply by DaddyT on August 15, 2009 at 4:48

Kathy,

Just what additional deductions are you referring to?

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Permalink Reply by Kathy Morgan on August 15, 2009 at 11:44

If you are an active (or working) interest owner you get to take the same type of deductions you would take with any business (i.e. mileage for travel, insurance, utilities, wages, etc). Of course, you have to actually HAVE the expenses to take, mileage usually being the big one. But the down side is the O&G company holds out all that kind of stuff off the top of your income from them. So in the long run, you get to take more deductions, but you have a whole lot less money in hand from the O&G Co.
If you have a passive interest the only things you can take off on your tax return Shc E is depletion and severance type taxes. You can take off real estate taxes but on your Sch A.

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