You need to discuss the income tax issues with your tax CPA or a tax attorney. I think that the LLC can elect to be treated as a partnership for federal tax purposes, which would allow the royalties to still go to Sch E. This election has to be done in the first year and is not a yearly option. The tax treatment of WI may still go to Sch C, perhaps depending on whether this originates as lessee of third party leases or from being an unleased mineral owner. You also need to consider options based on the state of formation of your LLC or LP or other entity. Texas at least treats entities differently for franchise tax.
1 Like