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landowner Comment by Kathy Morgan on July 30, 2008 at 3:53

The land owner must be designated as a "working interest partner" as opposed to a "royalty interest partner". You can deduct taxes paid on production from either but depletion and other expenses are for "working interest partners". Don't jump to the conclusion that since you can have more "write-offs" as a working interest partner you should do that. You also incur more expenses deducted from and liabilities over your royalties before you get them as well. As I said everyone's case is a little bit different, however, most small ladowners are going to come out better in the long run as a royalty interest partner.

landowner Comment by Kathy Morgan on July 30, 2008 at 1:12

Yes sir there are deductions you can take from the royalities, mainly taxes. The depletion is taken by "working interest" partners, so it depends on what the lease ends up describing. Everyone's situation is a little bit different

landowner Comment by Don S Martin B1and Cb1 on July 29, 2008 at 15:14

I'm not sure about royalties from this field, but normally royalties have some deductions that reduce the gross distribution, and a 15% depletion allowance is subtracted from the gross.

landowner Comment by Kathy Morgan on July 29, 2008 at 14:23

The "bonus", any other lease income AND the royalties are all considered regular income and taxed at whatever your tax bracket is for both federal and state. This income is not capital gains so not eligible for the lower rates.

Comment by Debbie on July 29, 2008 at 5:43

I am confused about the taxable part. Is just the lease "bonus money" subject to the 41% taxes (or around that) or are the royalty profits subject to that also? I did not quite understand if both were or not. If someone could answer this it would clear up a lot of confusion to a lot of people.

landowner Comment by Kathy Morgan on July 28, 2008 at 15:03

You don't have to 'pay in' social security or medicare taxes, however, if you are receiving social security benefits the additional income may make some of those benefits taxable and if you are eligible for medicare it may make your premiums increase depending on your total income.

landowner Comment by Landowner on July 28, 2008 at 12:02

Kathy,
I know that the bonus is considered regular income and taxed at that rate for State and Federal. Are we required to pay social security on this amount also?