If you don’t want the federal and state governments to tax your oil and gas lease income to the fullest extent, some strategies need to be put in place. One strategy is to separate checks each month or each quarter to pay your taxes. This avoids the ability for large amounts to be taken in the future.
Another strategy is to calculate the federal tax liability for royalty payments. Separating your payments will erase any future tax issues, as well as assist in payment planning.
Payment planning is a key strategy to keep track of what your taxes are and how they will affect your specific lease. Another strategy is to make sure you time your bonus payment properly. If you consider spreading out your payments over two or more years, you can avoid paying higher taxes.
How can you pay for these taxes? Setting up a tax reserve account and putting aside appropriate amounts from each check can pay these estimated taxes. Some people may not bother with planning and putting money aside for these taxes, but this will not benefit you in the long run. Take the time to plan your payments and you will spend less money in taxes.
Each payment plan will be set up to assist you with these taxes and also help plan with any future issues that may arise.