Managing new income from an oil and gas lease can be tricky, but if you make sure to have a plan and stay organized, you will be able to enjoy the benefits that come with your lease. It is important to understand the different payments that are involved in a lease income and how they work.
• Bonus Payments
Bonus Payments are the amount paid to the lessor/landowner for execution of a lease by the Lessee (Gas Company). A Bonus Payment is typically one payment, but could be and is often two or more. However, it is time timing of bonus payments that are very important. The “recognition of Income Rule” states that Lease payments are taxable in the year they are payable under the terms of the lease, regardless of when they are actually paid. In order to avoid these taxes, consider spreading out bonus payments over 2+ years.
• Delay Rental Payment
A Delay Rental Payment is the amount paid to the lessor/landowner during the time between signing the lease and actual drilling occurs.
• Royalty Payment
Royalty Payments are a negotiated percentage of gas production revenue paid to the lessor/landowner. These payments start of large but declide over time.
Setting up payment options and monitoring potential taxation on lease income can sound stressful and confusing, but our Northwest team can help you with any problems you may encounter.