Oklahoma Oil Royalty

[WhiteOleander]

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?

[Corduroy Frog]

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.

[Kram BergGold]

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.

[WhiteOleander]

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.

[TXEA]

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.

[WhiteOleander]

Thank. I appreciate the help.

[origun]

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.