I am an unleased Cotenant in Texas. The revenue is being reported as non employment income on my 1099 which is subject to self employment tax. Any ideas on how to avoid or minimize the self employment tax on this type of income?
As an individual, you will have to report on Schedule C. Be sure to deduct all the JIB payments for well costs, and other direct costs such as postage. You may be able to deduct a portion of your health insurance and your accounting fees. Consult your CPA about this.
Visit with your CPA, I imagine that you need to report as royalty income.
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Revenues from unleased minerals are treated for tax purposes as being a working interest. After payout, the MI receives all the income and has to pay JIB costs. The individual owner will report on Schedule C as self-employment income. The mineral owner will receive a 1099-NEC from the oil company.
Does dropping mineral rights into a trust avoid self employment income on unleased co tenant self employment income ?
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I have no idea. That is a question for your estate planning attorney and CPA, and any decision on a trust has long-term management, legal, tax and cost considerations.