T, did you not get a copy of the 1099 to submit with your return?
Ok another question regarding Original cost basis when the property was acquired that appears on form 2210. Would that not be ZERO as there is no way of knowing what, if anything will be pumped from a well whether gas or oil or combination therein? Each month has seen a variance weather withstanding and due also to maintenance or down time. How can anyone know what the cost basis might be as a starting figure.
How many years can a well be amortized? It's anyone's guess if a well will pump for 10 years, 30 or 1 isn't it? I originally put in 20 years but question if I should put 100 or ? I have no inkling about overall value to put in an amount. Thx
If you just take the 15% you can take it forever. You made XX,XXX you deduct 15% of that. If you want to do it the other way you need a report of the proven reserves and then you calcolate how much % was produced each year and after you reach 100%, you just take 15% depletion each year after that, or so I've been told.
Now then, if you don't have the report on proven reserves, I would just take the 15%, no sense making it any harder than it is or borrowing trouble.
If you think you can talk the oil company out of their report that they paid for, at no cost to you, I would say great, do it that way, but I don't think you will get it from them and I don't think it would be cost effective to get your own. I hope this helps.
Ps. T from your post, it sounds like you are trying to figure it as an apartment building and it's not.
RW yes, I got a 1099-misc but the only info on that form is the royalties in box 2.
Having no background with computing the start or finish of drilling, I have nothing from the oil company indicating a basis. No idea how long to stretch this out or if a norm is stipulating 20 or 50 or 100 years even if it dwindles within 2 years. Information is wordy, lengthy as you have much more knowledge in and to the novice it is tedious for certain when having no guideline....so advice from those having their toes in the water a few years is graciously welcomed.
As it is, in 40+ years of doing taxes I have never had to pay in. It seems many things are cut and dry regarding input to the forms and not looking to over complicate things. I turned 62 two weeks ago....chose to look for work but not work after March 30, 2013 so my include was let's say XX,XXX.xx thru March. Royalties income added brought my AGI to XXX.XXX.xx it appears I will be having to pay back to the feds over $XX,XXX.xx.
Unsure if this is normal for folks out there but I could see a penalty of $2k or $4k but over $10k is a gulp and a half.
The H&R block office I stopped at on Monday didn't impress me...sorry folks but I asked ahead of time if someone in house knew how to deal with royalties. Was assured I'd talk to someone in the know. After over an hour of head scratching I left thoroughly frustrated. Anyone else local to my area in TN probably would give the same stare and hence asking those in the forum for help is a blessing for having been there and done that.
A few simple things I may have overlooked or direction will certainly help. As it is on the tax software, I did find the spot to include depletion at the 15%. It dropped my penalty by $4k...certainly that helps but wow....how does one prepare for something over $10k.
It is why I question how long the value can be stretched out. Stating it can be forever I have tried to correct it from 20 to 100 years and it doesn't seem to want to correct itself. Still trying.....thx
If you are receiving significant income with no taxes taken out, you are going to owe at the end of the year. I put back 50% of what I receive from my oil and try really hard not to touch it, but I anticipate the need for lawyers and accountants for myself in this business, this also pays my taxes.
T you are saying PENALTY, do you mean to say that you have a penalty for not paying in estimated tax, or that it is just what you owe in taxes?
T, I hope you are on top of the ND state taxes also, they could be around 4% depending on how much you made.
Income was just under 6 figures..but added to my salary ending in March it put it over 6. Correct, nothing was withheld in taxes. I knew I'd be paying taxes but whew....
Penalty I was referring to was the tax owed instead of a refund.
I had heard that ND was going to take taxes out starting in 2014....nothing was shown on the 1099-misc for 2013.
Seems that I read somewhere that if the royalties were under a certain value...a 15% depletion could be allowed. If over a value...say 75k it was a higher amount and upwards of 23%. The norm it seems is the standard 15% so am curious if anyone has seen this as well for it might impact the amount I have to pay in.
ND will compel operators to withhold ND state income tax in 2014, that does not mean you don't owe them taxes for 2013.
T, I believe that you will owe the state of ND close to 4% of the royalty you received in taxes.
One of my operators started the 3.6% withholding of ND state tax last October, further complicating matters for my CPA. One of my operators has been taking 28% backup withholding because we are in a dispute. I don't care because I am not cashing any checks until the matter is resolved
Well RW I realize it has been stated that ignorance is no excuse but alarming just the same. I'm sure the argument has been out there from the turn of the century that oil companies should be a bit more forthcoming in information. Dealing with royalties is far different than a conventional W-2 most of us have gotten since our beginning. Of the thought that if it's not shown don't worry about it is a sign of ignorance I suppose but it's not like anything appears published as a guideline and geez why can't an oil company provide that for the common person who is dong this the first time.
Your advice is time effective RW but will scramble to confirm what you've said. A week or so ago I thought I read only a few states were subject to state tax until 2014 and ND was not one for 2013 but I am probably way off base on that. As it is, I wouldn't know where to file for it anyway for not subscribing to a ND tax form in the past either. You appear to have many holdings from things I've seen you discuss in the past year. In the dark for the landman doesn't provide zilch, nor does anyone else and as you say it complicates matters all the more.
You would think the IRS would penalize the firms that don't convey properly to the royalty recipients...similar to a normal employer not issuing a W2 on time. All too complicated and frustrating. The whole idea of having a light at the end of the tunnel for income out of minerals has added a dark side to it all for sure.
You can trust me that North Dakota has had a state income tax for several years, it's South Dakota that is the tax haven. Unfortunately, if you made money in ND, they get to tax you on what you made there. Im sure ND has property tax but I don't think they go overboard like some states and tax your 5 years old car and whatnot.
ND doesn't need to tax your mineral interest, they tax the production of your minerals bigtime. About 11.5% production and severance combined plus state income tax of around 4% if you made very much. 15.5% ? I have taken to telling people that when you get a well the state gets the equal of what you get from the well. No wonder the state will let the operators do absolutely anything to you because they, the state, want "their" well.
Certainly a 1099-misc isn't anything like the W2 I've seen for years. On the W2 state taxes are shown. So ambiguous that a person has to dig into foreign territory but if it is true RW, where does the 4% go on the 1040? or what schedule for that matter? Now a bit familiar with Sch E, I don't recall it asking about anything. Ooop...make that if the 4% is due...it goes to a ND state form that I didn't subscribe to initially. Still....nothing is shown on any other form I have and the only W2 issued was for my working in TN that is a non-income tax state. Curiosity question is that if I do not file a ND form, what would happen or when would someone catch it or ?
T the 1040 is your federal tax return. You need to get the ND tax form and pay your ND taxes directly to ND. You can probably download the form, instructions are probably online. You might even be able to e-file these days.
T, people will start getting caught next year, remember the withholding, they are making the operators do this year? When tax payments start showing up for wells a couple years old where they had never received anything before, there are going to be some look-backs. I don't think not filing will give you a breather either, when the operators start withholding, they are going to give the state your name and address, SS# and so forth. I suggest you file.
RW...thanks as before. Tedious as it all appears to be, most of us are used to looking at the W2 or similar and taking from boxes posted the information and plugging it in to the worksheet or software whether a federal tax or state. Receiving no W2 from the state of ND or from Continental in my case but just a 1099-misc with no information on it, unless identified by someone in a forum, how in the heck is ANYONE supposed to be enlightened? Regarding taxes, a state or federal doesn't give a rip about the common person's plight. Being in the dark isn't an excuse they might say.
If anyone is determined to file a state form you'd think something would be mailed to them identifying so. Yes most states will let you e-file.
When I paid for the H&R program instead of TurboTax, like most I had the option of also filing a state form. Again, with no prior knowledge I saw no reason to make that step and also pay for a state. Otherwise I could just continue on and more than likely have to mail in a penalty payment similar to the federal now as it appears I owe. A refund could be direct deposited.
I had read a month ago that ND would definitely be hitting for the tax in 2014....that prior years were a loophole or similar. What do I know? zippo!
Many thanks!
RW, I chose to call the ND tax department and you were correct. As I had read a month or so ago, ND legislation has it that oil companies like Continental will have to start withholding state taxes and it will then appear on the 1099-misc. The gal I spoke with was friendly/helpful and indicated that yes, taxes would be due and I will have to file a Non-Resident state tax form. Well, I had that feeling all along but can't be faulted for wanting to take the easy way out. She indicated they actually dealt with a woman who had been receiving royalty since 1966 and even if a minimum amount, I can't imagine going back 3 years let alone 48...wow! I will have to file Federal first then tackle the state. Next year I will be better prepared!
Does this sound right? I do my own taxes, this year received $1950 lease bonus payment this year, I have not received Royalty payments in years. Turbo is saying I would owe $75 in Oklahoma Tax (I am not an OK resident). It sounds awfully high to me, on property that has not produced any income in years. On the OK State Return I must be missing something I should input? On my Federal Return I entered the amount as "1099 Misc. income", of the type "Rent" as that is what the 1099 said. I have never claimed any deductions for this property (like depreciation). I appreciate any help.
Bonus income is not subject to depletion.
Thank you.
The current maximum capital gain tax rate is 20% plus 3.8%
"Taxpayers/lessors typically receive a lease bonus from a lessee — the party that extracts the natural resource — in consideration for granting the lease. A lease bonus may be paid in a lump-sum or multi-year payments. The lessee should provide the taxpayer with a Form 1099-MISC, Miscellaneous Income, listing the amount of bonus payments as “Rents” in Box 1. Taxpayers usually report their lease bonus income as rent on Schedule E."
For reporting a Leasing Bonus look at your 1099-Misc form when you receive it...It will state the amount, then mine clearly states "Rent" in another box, so that is exactly where I put it in my Federal Return. If the property had been actively producing I might have received a royalty but it wasn't producing so I did not receive a royalty.
In some way it might be considered a "Future Royalty" but I made the decision to report what is actual, not "possible". The tax due is probably no different anyway, and my return has been accepted by the IRS.