Hi all -
This has been very informative, and I thank you all for your insights, information and scuttlebutt. I have a question, esp. aimed towards any cpas or tax lawyers out there. Is bonus income taxed as capital gains or straight income? There is a huge difference, of course. I believe we will receive a 1099 from the company, but I'm not sure. I have not received a 1099 from a company before, but this bonus is much larger than anything we've had in the past :-)
Thanks for any info and enjoy the Fourth -
I feel that if there were an advantage tax wise , I do not feel it would be in this manner.Because if that were the case would we also be able to write off depreciation or capital loss if N/G went down in price from time land was purchased ? This is a good way to find out some of the more difficult things that only the wealthier have had to deal with all these years ! All you guy's that have been turbo taxing in the past...........Those days are over! Baby needs a new pair of shoes , CPA ??
Hi to all. I am an accountant and did lease one parcel of property last year in Sabine Parish, will lease another parcel soon. You will receive a 1099-MISC from the oil company in which you lease to. You will receive this no later that mid-February as the law requires them to be mailed by January 31st. The bonus money you received will be in box 1 labeled Rents. You will then file it on a Schedule E of your Form 1040. You can take any legal fees or such expenses in obtaining the income as a deduction against the income on the same form. The net amount will be taxed according to whatever tax bracket you fall into. Hope this helps. Donna
Here is what the CPA told me and I really don't understand it but here goes: That an LLC should be set-up PRIOR to any well being drilled. That the tax rate for the LLC will be based upon the pre-production "value" of the oil/gas. That this tax rate will be lower than when the oil/gas is actually being produced and the oil/gas sold at a higher market price.
I don't really understand how much less the tax rate will be but I will find out more in the next few weeks. Also in an LLC, you can give a portion of the royalty to a family member, child, etc. and they would be responsible for their portion of the tax.
I believe that she said it was important to do it prior to drilling, but not much can help with a signing bonus. Her last name is Fraizer and she is with Heard, McElroy and Vestal. I believe that she is also a contributor to one of the local monthly magazines and that she handles the oil and gas accounts at her firm. I will check on the name.
If my understanding is correct, most LLC's are set up to be "pass-through" entities that means for tax purposes the tax liabilities pass through to the owners. My family has set up a Family LLC and dropped acreage into that. However, the tax liability is still borne by the actual owners of the LLC. There are quite a few reasons to hold property in an LLC, but I am not sure that it is b/c it is MORE tax-efficient than holding as an individual...or at least we are not getting the benefit of that in our personal case.
Randy simple in nut shell answer----Royalties taxed as passive income adds to the adjusted gross income total ; however you receive a 15% depletion allowance. You lease bonus also taxed the same way but no depletion allowance-- passive income. Remember there is no taxes on your minerals year to year until you have royalty production or is leased then income taxes plus with production also property taxes are paid each year you have royalty payments. ( The different in PASSIVE INCOME is NO FICA OR MC taxes vs ACTIVE EARN INCOME--- You Salary-- you pay FICA and MC TAXES) You final % taxes is based on your total adjuasted gross income. So one good thing NO FICA TAXES on royalty or bonus money
As exciting as this is, we know that we have a responsibility to do this thing correctly. After all, we want the farm to remain a place where the family can gather for another 80 years and beyond. This site was born out of these desires. Before we started this site, googling "shale' brought up little information. Certainly nothing that was useful as we negotiated a lease. Read More