Perhaps this is not the place for tax questions but maybe someone can give a quick answer.
On a 1099 Misc Income form for oil royalty payments it shows Gross Income and Net Income. It also shows deduction for taxes, which I have been told is TEXAS Severance Tax.
IT LOOKS LIKE I MUST REPORT GROSS INCOME,MY QUESTION IS CAN I DEDUCT THE SEVERANCE TAX ON MY FEDERAL RETURN?
In Michigan I think this is called a State Production Tax. I was told that I must report the Gross shown on 1099 Misc, Line 2, not the Net.
The question I have posted asks: Can I take advantage of the 15 % depletion deduction ? Are you familiar with depletion deductions ?
Steven, Thanks for responding. I used TurboTax last year entered the Gross Income and it adjusted the income for the Oil Depletion Deduction. I started my form for this year and it did likewise. I am a novice at reporting the royalty income but Turbotax calculated the deduction. I still think maybe you can deduct the severance tax on the federal return. Have a great day Carolyn
Steven Taylor said:
In Michigan I think this is called a State Production Tax. I was told that I must report the Gross shown on 1099 Misc, Line 2, not the Net.
The question I have posted asks: Can I take advantage of the 15 % depletion deduction ? Are you familiar with depletion deductions ?
I just completed my taxes, and for what it is worth (no pun intended) on gross royalties of $35,837 I got a deduction of $4,121 taxes paid (line 16, schedule E), and $5,376 for depreciation (line 20, schedule E) for a total deduction (“expenses”) of $9,497 (line 21, schedule E) which brought the royalty income down to $26,340. I’m a resident of Mississippi and had to pay income taxes of $174.00 to North Dakota on my oil royalties. (I paid nothing to the state of Mississippi.)