My royalty payments to date have shown a deduction for ND tax. Is this the standard procedure? and if so would i owe more to ND. I live in Minnesota.
It's normal to have production and severance taxes taken out. I never had ND state income tax taken out but them my holdings are not huge and I have a good CPA. I wouldn't want them to withhold state income tax unless I thought I was going to owe alot, so much I needed to make quarterly payments or something.
Ok. Thanks! I am meeting with lawyers and financial consultants shortly and will find out more.
More than likely when you received an oil check, the oil company took out the extraction tax (11.5%). The gross production tax rate on oil is 5% of the gross value and the oil extraction tax rate is 6.5% of the gross value. You will still be responsible for paying State Income tax on the revenue.
Even though you live in Minnesota, you will have to pay North Dakota their 4% state income tax and if your Minnesota tax rate is 7.85%, you pay the amount above 4% to them(3.85%).
dk
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That is great information. I would hate to have Uncle Sam knocking at my door. I will bring this info with to my next meetings.
2014 Income tax time (make that filing for 2013) and I asked a question several months ago regarding how to do the taxes. As a person who for 40 years has not had the need to pay a tax consultant...to include someone from out of state, I seek some suggestions as to how to file the 1099-misc.
A non-resident of ND where the royalties are obtained, I have 2 siblings...also non-residents but from differing states. I see that no Federal income tax was withheld in box #4. I see nothing filled in for Box 16 and believe that the 1099-misc altho covering ND has originated from OK were the Continental office (in our case) issued the form from.
In my case 2013 Royalty value in box 2 is below $100k so State Income in box 18 is the same. Nothing else is shown on this form. R.W. Kennedy was nice to reply prior to now about certain things but have been told by Continental that (or so I interpret) all penalties had been taken out. I could not see where on the 1099-misc any of this would be shown anyway and do not know if I or 2 other siblings would have to subtract or allow for anything else in order to do federal taxes.
I realize that Continental and other agencies are not income tax departments but fail to understand why a simple one page form isn't issued to assist the 1st time customers so that it can be used as a guideline. Again, I would rather not pay a tax consultant in TN for taxes from ND. Should this be necessary? If anyone else is out there that has done their own taxes in the past, suggestions would be helpful on how to prepare or look out for something when completing my 2013 taxes.
I do not believe ND state income tax is due. I see no federal income tax withheld in box 4 on the 1099-misc. I see Royalties only in box 2. But when doing my federal taxes.....anything else that needs to be inserted?
TRS
T, I don’t have answers for most of that since this is my first year as well. I have hired an accountant. Actually 2. 1 in ND and 1 in MN (where I am). So far my filing is not complete, but I do not the above holds true. You are responsible for 4% income tax on your payments to ND. In my case an LLLP was formed with my siblings and a K-1 form is required from operators to file. Also ND requires that thier 4% is held in the LLLP as not to go out of state. If your royalties are owned individually you may not need an partnership, but if they are combined I would recommend it. You can draw a salary and pay into 401k and other programs. Just a bit to help offset some of the tax burden. You can do this individually as well.
AD,
Thanks of course....I recall a note you possibly created indicating the LLLP and 4% income tax. I had gotten the following reply this morning from a representative from Continental....bear with:
Federal withholding is only deducted in instances where your Federal Identification Number is missing from our system. In these cases, it is a requirement from the IRS that we withhold at a rate of 28%. Outside of this situation, federal withholding is not something that is typically deducted from owner payments. State withholding is only deducted in instances where a non-resident has an interest in a OK, MT, or ND (ND is starting in 2014, but did not have this requirement for previous years) well. In these instances, state taxes are deducted from the owner payments. However, if you reside in the state where the interest is located, you will not have state withholding deducted from your checks.
Your 1099 does not reflect Federal or state withholding because these tax types were not deducted from your payments. The taxes you see being deducted from your payments represent severance/gross production taxes. These are standard taxes that are deducted from most owner checks.
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So when someone responds with being responsible for a 4% income tax....again I'm in the dark here. If so where does one put it? I already know that prior to receiving the first royalty I told Continental to subtract the fee or some tax fee and thought it was 14%. Perhaps it doesn't include the 4% tax you indicate...again....dumb in this respect I'd hate to double pay.
whew! Taxes....but no I am not sharing with 2 siblings. Each is separate! Yet I want to pass on timely info to my sister in MN. Thx
The 4% deduction is applicable to your personal income tax responsibility to ND. If your tax ID pin is in order they should not withhold this from your checks. With that being said your will be responsible to see that ND gets the 4% for personal income tax and you will also be responsible for the difference from 4% to what your state of residence tax is. I.e. If your state is 7% the. You owe the 3% difference from the 4% you already paid ND. For 2014 I am sure that ND is instituting this rule so they don’t need to track down out of state residents. Our LLLP is registered in ND, so no worries for me on that part. Now if could just eliminate state income tax life would be great. But you can see why they voted that down. LOL
Correction. It sounds as if they will withhold 4% from your checks since your out of state. Then you just owe the difference to your state.
For 2014 that is.
Not sure...I got a response stating that prior to 2014, ND did not withhold state income tax. It appears that 2014 moving forward it will show up on the 1099-Misc. I've only seen one or two 1099 forms during my career and I only included information that was shown. I typically use tax software to do taxes or have for at least 10 years. Although not all inclusive, I have yet to see a return come back to haunt me and would like to nip it all in the bud so subsequent years wouldn't see a problem either. I wouldn't know where to show a differential for my state does vary from 7 to 9.25% or on what line. Perhaps the tax software when reviewing 1099 info will recognize it and bingo it'll be done?
I know...not hardly! Only once and 35 years or so ago did I rely on H&R Block or similar to do my taxes, walking in to a store to process it. The forms were done wrong and I ended up paying a penalty. Hence stating I could go to a dozen different "professionals" only to worry it was done correctly to include anyone that has never dealt with royalty information.
To each thier own on the accountant issue. Pro’s and Con’s to both and depending on how complicated your taxes are. I am in serious doubt however that Turbotax will calculate the difference in owed tax in ND versus the remainder owed in your state. I would pay the 200 - 300 to an accountant to atleast assist in the prep. You of course can always review it. Once it is done the first time then you know it’s done right. But I am not your dad. LOL good luck with however it works out. Hope all the wells keep pumping for years to come.
T, I would never go to an accountant in a box, those people hire seasonal help and they don't care what experience they have, they might have sold Avon for the rest of the year. I also find that my local independent CPA who is working on taxes and keeps 2 full time employees year around charges less than tax-in-the-box. It's good that your operator is not starting withholding until 2014, I have one operator that started November to complicate matters a little. My operator that is withholding is withholding 3.6% ND state. There are probably some people who think they didn't make enough in ND from their royalty to need to file ND income tax and not realise that if you made a dollar, ND wants their cut. In ND, when you get a well, the state gets a well too and makes about as much as you do off your minerals.
RW, are they withholding 3.6 because your resdident? I was told 3.99. Guessing because I am out of state.
I thought they were just withholding 80% of the maximum which seems like a fair amount. Most people I think will not owe 4%. I can't wait to pay them my part because it would mean I made so much more. Past years it has not bothered me to write them the check, they just made it slightly more complicated for this year. KOG was the operator holding out 3.6% the difference may be between operators. I live out of state
Good to know. I will look into it. We withhold 4% in our LLLP. Hate to double tax myself!