Taxes on Montana Production Royalty Payments?

OK, so looking at our statement &1099s from Kraken Oil and on the supporting schedule I see our 1099 at about $900 for MT state withholding, but another box simply labeled “taxes” for $2k ? I have not heard back from Kraken on this, but I am guessing the bulk of this is severance tax + others ……production, excise, & conservation etc. So are we generally stuck with this, or is there a way to deduct this from either state or federal taxes?.

Not sure if it’s legal, but i just set it up in turbo tax as a business and then there was a place for deductions. I deduct everything, I only want to pay income tax on real income. nvancamp

Generally, for an individual, federal tax return, royalties are reported on Schedule E, with gross revenues separated from deductible costs such as severance taxes and depletion. Any state income taxes withheld are reported on your Schedule A (subject to any limitations). Your state income tax treatment depends on state law and how your state treats income taxes paid to another state, as well as depletion. Different reporting if minerals are held by a partnership or corporation. You need to consult your tax accountant for your particular situation.

Yes, I’m using TurboTax as well and expected to be given the chance to input additional taxes as deductions in my mineral revenue section, but I’ll have to check again……the state withholding was 1099’ed properly, but no breakdown given on Kraken’s detail as to how much of the amount shown under “taxes” was severance, or other… Thanks for the reply’s!!

Unclear what you mean by set up as business and deduct everything. Warning that if you report royalties as business income on Schedule C, then the net income will be subject to self-employment tax. You should consult a CPA experienced in oil and gas to understand the tax differences between royalty and working interest income and how they are properly reported on your tax return - to make sure you comply with tax codes and do not end up in an IRS audit.

This topic was automatically closed after 90 days. New replies are no longer allowed.