First, thank you everyone for this forum and your input. I am in a "perfect storm" situation. Earlier this year, my family sold a large tract of timber land. I agreed to the sale to help out a family member who was in need because of a foreclosure situation on a business. This morning I checked my 10/31 payment from an operator and a large check that has been held in suspense is being paid. I talked to my accountant and he said this check will push my capital gains tax into a higher bracket and to contact the operator and see if they could hold the funds until January of 2015. My normal yearly income is much lower than what it would be this year. I contacted the operator and the gentleman was very nice, but he said that would be against their policy to keep the funds in suspense until next year. I don't want to risk doing anything illegal, but I wondered if anyone else had any ideas on what I might try to do. Thank you again, Kathy.
Your personal situation not withstanding and assuming your suspense check is for production royalties, the operator's check will be ordinary income not capital gains. You may want to supplement your low ordinary income this year if you have a good well or more that will be generating more personal income next year thereby throwing you in to a higher person al income bracket next year.
Projections of Well decline and field development may be the key to your decision. Uncle is going to get his sooner or later. Perhaps you could focus on 2014 write-offs of the underlying value of the timber and holding costs and transaction costs of the royalty income. Also, as nice as the gentlemen was on the phone, suspense checks don't always go out at the same time. You may not get a check until late November. Ask your accountant what you can do with it so late in the year. The 1099 from the operator is based on when they pay not when you receive and deposit.
Thank you Mr. Hutchinson. Yes, you are correct. The royalty check is ordinary income. I guess I didn't explain myself well. I understand I will be taxed ordinary income on the royalty check, if I pay in 2014 or 2015. We sold the timber tract earlier in the year which is a capital gains tax. With this large royalty check and its impact on my yearly income, it pushes my capital gains tax into the 23%+ bracket. I met with my attorney yesterday and I cannot force the operator to withhold the check until next year. I guess I just need to be thankful for the problem :). Thank you again, Kathy
Gary L. Hutchinson said:
Your personal situation not withstanding and assuming your suspense check is for production royalties, the operator's check will be ordinary income not capital gains. You may want to supplement your low ordinary income this year if you have a good well or more that will be generating more personal income next year thereby throwing you in to a higher person al income bracket next year.
Projections of Well decline and field development may be the key to your decision. Uncle is going to get his sooner or later. Perhaps you could focus on 2014 write-offs of the underlying value of the timber and holding costs and transaction costs of the royalty income. Also, as nice as the gentlemen was on the phone, suspense checks don't always go out at the same time. You may not get a check until late November. Ask your accountant what you can do with it so late in the year. The 1099 from the operator is based on when they pay not when you receive and deposit.
Gary Hutchinson
Minerals Management
Some problems are better to have than others. GLH
Kathy M. Stephens said:
Thank you Mr. Hutchinson. Yes, you are correct. The royalty check is ordinary income. I guess I didn't explain myself well. I understand I will be taxed ordinary income on the royalty check, if I pay in 2014 or 2015. We sold the timber tract earlier in the year which is a capital gains tax. With this large royalty check and its impact on my yearly income, it pushes my capital gains tax into the 23%+ bracket. I met with my attorney yesterday and I cannot force the operator to withhold the check until next year. I guess I just need to be thankful for the problem :). Thank you again, Kathy
Gary L. Hutchinson said:Your personal situation not withstanding and assuming your suspense check is for production royalties, the operator's check will be ordinary income not capital gains. You may want to supplement your low ordinary income this year if you have a good well or more that will be generating more personal income next year thereby throwing you in to a higher person al income bracket next year.
Projections of Well decline and field development may be the key to your decision. Uncle is going to get his sooner or later. Perhaps you could focus on 2014 write-offs of the underlying value of the timber and holding costs and transaction costs of the royalty income. Also, as nice as the gentlemen was on the phone, suspense checks don't always go out at the same time. You may not get a check until late November. Ask your accountant what you can do with it so late in the year. The 1099 from the operator is based on when they pay not when you receive and deposit.
Yes sir, you are right. Thank you for your help and have a nice weekend, Kathy
Gary L. Hutchinson said:
Some problems are better to have than others. GLH
Kathy M. Stephens said:Thank you Mr. Hutchinson. Yes, you are correct. The royalty check is ordinary income. I guess I didn't explain myself well. I understand I will be taxed ordinary income on the royalty check, if I pay in 2014 or 2015. We sold the timber tract earlier in the year which is a capital gains tax. With this large royalty check and its impact on my yearly income, it pushes my capital gains tax into the 23%+ bracket. I met with my attorney yesterday and I cannot force the operator to withhold the check until next year. I guess I just need to be thankful for the problem :). Thank you again, Kathy
Gary L. Hutchinson said:Your personal situation not withstanding and assuming your suspense check is for production royalties, the operator's check will be ordinary income not capital gains. You may want to supplement your low ordinary income this year if you have a good well or more that will be generating more personal income next year thereby throwing you in to a higher person al income bracket next year.
Projections of Well decline and field development may be the key to your decision. Uncle is going to get his sooner or later. Perhaps you could focus on 2014 write-offs of the underlying value of the timber and holding costs and transaction costs of the royalty income. Also, as nice as the gentlemen was on the phone, suspense checks don't always go out at the same time. You may not get a check until late November. Ask your accountant what you can do with it so late in the year. The 1099 from the operator is based on when they pay not when you receive and deposit.
Gary Hutchinson
Minerals Management