T/P has about 13000.00 oil royalty from an OK source. I have read that for the OK return he can deduct 22% depletion. The company also deducted taxes and "other deductions" from the payment. Can these deductions also be deducted from the OK income on the return?
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You have the right to remain silent. Anything you say will be misquoted, then used against you. -
Other Deductions
Absolutely he can deduct "Other deductions" from his checks if they are expenses. Examples of things he could NOT deduct:
withheld money to satisfy loans, deductions for taxes, retainers to be paid later, etc. Even retainers could be subtracted from sales if taxpayer is on cash basis. -
What I do
I am not from OK but here is what I do. I report the income and deductions on Federal Schedule E. Then in OK I take both the Federal depletion and an extra OK delpetion. This amoun tis provided to me by the partnership that owns the well.Comment
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Well, on the 1099 MISC, it lists "other deductions". It does not say what they are. I'm not sure they can be deducted on the OK return. It is not depletion.You have the right to remain silent. Anything you say will be misquoted, then used against you.Comment
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The taxes are most likely severance taxes (which are deductible). I am not sure about Oklahoma, but New Mexico requires the operators to also withhold NM state income tax from out of state royalty owners. The 1099 should have a separate line showing any state income tax withheld. The "other deductions" are most likely deductible on the federal and state returns; however, if you have any doubt, have him bring in the productions reports that come with each check and give them a once over.
I always show the "other deductions" as "operator deductions" since it is usually something the operator has an agreement with the royalty owner to reimburse. I have never seen any of them that were not reasonable deductible expenses.Comment
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Thank. I appreciate the help.You have the right to remain silent. Anything you say will be misquoted, then used against you.Comment
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State Income Tax
I have one client with a fair am't of OK royalties from several different companies. He has state withholding taken out of all, in some cases just a dollar or two. When I put the w/h all together on the OK return, my client always gets a state refund so I think they intentionally over-withhold in case out-of-state taxpayers don't bother to file an OK return. I also deduct the OK w/h on the federal schedule as state income tax paid--hope that is correct. All the other deductions (e.g., severance tax) I deduct as expenses on Schedule E.Comment
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