Do you feel like you or your business is missing out on tax credits or opportunities to allow you or your business to grow? Give us a call today to set up a consultation meeting to see if you could have some extra money in your pocket!
Thank you for visiting the website of HD Davis CPAs, LLC. In addition to providing you with a profile of our firm and the services we provide, this Website has been designed to become a helpful resource tool to you, our valued clients and visitors. Our dedication to superior client service has brought us to the Internet as we endeavor to continue to provide the highest quality professional service and guidance.
Our primary areas of expertise include but are not limited to Income Tax Preparation for businesses and individuals and Quick Books setup, support, and training. As people are faced with the decision whether or not to lease their gas rights, there are many possible tax effects to consider in addition to royalties and profits.
The extraction of natural gas from Marcellus Shale deposits in Ohio and Pennsylvania is bringing substantial financial benefits to many landowners. Significant tax implications often accompany these benefits so landowners planning to enter into a gas lease need to be aware of how income from a gas lease is taxed and how it can affect the landowners’ overall tax profile.
• Lease Bonus and Royalty Payments – These amounts are taxed as ordinary income, subject to marginal federal tax rates up to 35 percent (potentially 39.6 percent in 2013).
• Depletion Deduction – A tax incentive, in the form of a “percentage depletion” deduction, is available to most recipients of royalty payments (not lease bonus payments). The percentage depletion deduction is equal to 15 percent of royalties received, resulting in only 85 percent of the royalty usually being included in a taxpayer’s income.
• Changes to Overall Tax Profile – Increases in income can have hidden tax costs. Additional income may result in a greater portion of Social Security benefits being included in federal taxable income or a phase out of various tax deductions and credits.
• Reducing the Impact of Lease Income – Concentrating deductions in tax years in which significant lease bonus or royalty payments are received can help reduce income. Deductions to consider include maximizing depreciation and Section 179 equipment expensing deductions for a landowner’s farm or self employed business; maximizing allowable contributions to IRAs and other retirement plans, establishing Health Savings Accounts, if applicable; “bunching” of several years’ charitable donations for landowners who itemize deductions; and other techniques that can be suggested by your tax advisor.
• Damage Payments - Payments negotiated as “damage payments” can receive favorable tax treatment. Damage payments related to land or timber are tax free to the extent of a landowner’s “basis” generally his or her cost) in the affected property. Payments in excess of the basis are usually taxed as long term capital gains; ie. payments for damages to a farmer’s crops are considered ordinary income from the farm (these ideas are not intended or written to be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations and cannot be used for these purposes).
Please feel free to contact us with any questions or comments you may have - we'd love to hear from you. We pride ourselves on being proactive and responsive to our clients' inquiries and suggestions.
HD Davis CPAs, LLC
125 Churchill Hubbard Road
Youngstown, Ohio 44505
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