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socrateaser
socrateaser, Lawyer
Category: Tax
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Experience:  Retired (mostly)
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HI, recently I leased my land to an oil company that may drill

Resolved Question:

HI, recently I leased my land to an oil company that may drill on it someday. I received bonus money. I am retired, and trying to figure out how to make 2012 quartely taxes.

I understand that I could just add the bonus money onto last years income, but the bonus money would not have been adjusted yet, So the answer would be over stated.

How do I go about figuring the adjustments that need to be taken out of the bonus money so that it would the correct figure with adjustments already made that I add to last years income.

This somewhat confusing to me, but I hope it is not as confusing to someone else.
Submitted: 5 years ago.
Category: Tax
Expert:  socrateaser replied 5 years ago.
Lease bonuses are not subject to depletion adjustments. They are taxable in the year received without adjustment. See Anderson v. Helvering , 310 U.S. 404, 409 (1940) ("cash bonus payments, when included in a royalty lease, are regarded as advance royalties, and are given the same tax consequences." Bonus payments are not subject to percentage depletion after August 16, 1986 because of the enactment of IRC section 613A(d)(5).").

Hope this helps.

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Customer: replied 5 years ago.
This income would be from a state I do not live in and usually do not file taxes in this state. My farm located in this state will have a loss in the year 2012. Do I take the total bonus payout and subtract the farm losses from that number to figure what my quarterly payments would be for 2012?
Expert:  socrateaser replied 5 years ago.
Advance royalties are passive income and cannot be reduced by your farming expenses, unless your farming income is also passive activity. Thus, whether or not you can deduct farming expenses depends on whether or not you are a material participant in your farming activity.

Hope this helps.

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And, if you need to contact me again, please put my user id on the title line of your question ("To Socrateaser"), and the system will send me an alert. Thanks!

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