Protect Yourself and Your Family With This Free Tax Guide
This 3-part guide will help you reduce your tax burden, lower your risk exposure to energy prices and put the investment power back in your own hands.
Most mineral owners like receiving the monthly checks from production (aka royalty payments), but few owners understand the tax nuances and investment risks that come with these assets.
To help you save money by paying less to the IRS and giving you more control and freedom of what you can do with your money, we’ve put together a simple 3-part Investment Guide for Mineral Owners.
a Pathway to Pay 50% or Less On Your Mineral Rights
You have probably owned your mineral rights for many years. The IRS considers this asset a long-term capital gains for tax purposes, which is a 15% tax rate for most people.
Now compare this to what Uncle Sam may charge you on your income tax, typically around 35%. That means if you’re making $2,000 a month on royalties, you’ll only end up with around $1,300 in your pocket after taxes.
Taking this example further, you can compare the following estimated tax savings and income in “today’s dollars” if you were to chose to explore a sale of these minerals.
Over 6 years you could make $2,000/month and pay $50,400 in taxes
With a sale, you could make $144,000 this year and pay only $21,600 in taxes
Everyone’s situation is different, but we can all agree the tax benefits of selling mineral rights presents some very interesting (and strategic) food for thought.
Selling minerals not only provides you with a tax benefit, but can help you and your family in other ways.
2. Taking Control of Your Financial Future
Not only are there immediate tax benefits from selling mineral rights, but owners can also benefit from consistent returns from other investment vehicles that provide:
more flexibility when and how you buy/sell investments
greater stability with the ability to diversify your assets into high or low risk investments such as stocks, bonds, or mutual funds.
less exposure to risk volatility as payments are tied directly to unpredictable energy market prices
Following the same example above, you could reinvest a large lump sum payment of $120,000 received today from a mineral rights sale and make an additional $70,000 with an average stock return.
$120,000 x 8% annual return is worth over $190,000 in 6 years.
*Disclaimer: the above is not tax or financial advice and is for information purposes only.*
3. Reduce Your Risk and Exposure to Fluctuating Oil and Gas Prices
As a mineral owner you have probably seen your royalties fluctuate month to month, and year to year. While rental income from real estate may be considered “predictable revenue”, royalty income from oil & gas is anything but. It is an extremely volatile market.
According to CNBC, oil has now hit the highest price in 7+ years. To maximize the value of your rights in today’s dollars we now have one of the best seller’s markets in a decade.
Savvy mineral owners understand that if they ever plan to sell, the time to do it is at peak oil prices. During times like these, mineral buyers will offer mineral owners years and years worth of production in one upfront lump sum payment.
Navigating these sales can feel overwhelming but that’s why we started Cowboy Minerals – to be trusted advisors to individuals and families in order to guide them through the entire process with a no stress approach.