We inherited royalty interests and are filing taxes for first time including the income received per 1099-MISC. We only received $154 (net). How do I account for this? I use Turbo Tax and per their advice, entered on Schedule C. My Federal return was accepted, but my return was rejected by State of California. I’ve already paid an additional $90 to Turbo Tax for the additional forms that include Schedule C…this is costing me more to report than we received!
Royalty income is reported on Schedule E of your federal tax return. Gross royalties on Line 4 and expenses such as property taxes and costs deducted by oil company (severance tax, transportation, gathering, etc.) below. Percentage depletion is calculated on gross royalties. Schedule C is for oil and gas working interest income which is classified as earned income and subject to self-employment tax. California will have its own tax rules and may have a different percentage depletion rate.
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