Minimizing tax consequences...

I think there was a general discussion a while back but I can't seem to find it, so....

 

For those folks getting significant signing bonuses, how have you dealt with the tax consequences of being pushed into a higher tax bracket for the year you get the signing bonus? What about Alternative Mimimum Tax (AMT)? What other issues have you run into?

 

Same sorts of questions for royalty payments.

 

The reason I'm asking is that this gets into some specialized stuff and at least one accountant I spoke with was blowing smoke and clearly didn't have a clue about O&G income (signing bonus, royalty treatment, etc).

 

Mike

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Permalink Reply by Doug D on August 29, 2011 at 11:32pm

With regards to section 179, you cannot create a loss on your schedule F or C.  But instead of using section 179 you can use bonus depreciation.

Available in 2011 in code section 168 is a provision allowing 100% bonus depreciation of qualified assets, including qualifying leasehold improvements. In order to be eligible for 100% bonus depreciation assets must be place in service after September 8, 2010 and before January 1, 2012. One of the main differences between section 168 and the aforementioned section 179 is that in order to qualify for section 168 bonus depreciation assets must begin their original use. This is to say that purchases of used assets do not qualify for section 168, but do qualify for section 179. Another difference is that there is no phase out associated with section 168 bonus depreciation. Conceivably an unlimited amount of qualifying purchases are eligible for 100% bonus depreciation in 2011. Bonus depreciation will revert back to 50% for 2012. Also, the section 168 bonus depreciation can be used to create a net operating loss.

Permalink Reply by Steven Gardner on August 30, 2011 at 8:06am

Doug,

Do you have a link to the Section 168 IRS code on this ?  I can't find it

What form is it filed on ?

Thanks

Permalink Reply by Finnbear on August 30, 2011 at 9:00am
Permalink Reply by Doug D on August 30, 2011 at 11:11am
Permalink Reply by Steven Gardner on August 30, 2011 at 12:03pm

OK .. thanks all .. I've filed 4562 before but not for this..

 

Permalink Reply by craig on August 16, 2011 at 9:55pm

Estate taxes are about the only tax that you can do anything about. Talk to an estate planner, who can set you up so that future royalties after your death won't be included in your estate. My brother has just done exactly that.

 

Permalink Reply by JMS on August 16, 2011 at 10:01pm
Great advice!!
Permalink Reply by Patrick DeBerry on August 16, 2011 at 10:20pm
Mike, AFTER you pay your taxes on the income (that's how it will be treated), you can ask your investment manager about investing in tax free municipal bonds.
Permalink Reply by Bill anders on August 17, 2011 at 11:51am
OH may become a red state after all!
Permalink Reply by Jim Litwinowicz on August 17, 2011 at 12:10pm

Actually, you can do something about taxes before you sign a lease.  Form LLC or LFP with family members and spread out the bonus among all family members. Then you each will be paying at a lower rate. Same with royalties. But you don't get t keep it all yourself.

Or you could start your own church......

Permalink Reply by Bill anders on August 17, 2011 at 1:21pm
Churches and Not for Profit organizations have actually been running into issues, and some have even lost their tax exemptions due to income being received from either sign on bonus's and royalties.
Permalink Reply by Jon Henderson on August 17, 2011 at 8:53pm
I actually said that to my wife the other day (church), you can become ordained online I hear.

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