Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. The depletion deduction allows an owner or operator to account for the reduction of a product’s reserves.
There are two ways of figuring depletion: cost depletion and percentage depletion. For mineral property, you generally must use the method that gives you the larger deduction. For standing timber, you must use cost depletion.
Please review the information below on how to report depletion on each form:
From the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
- K-1 Input
- Select ‘New’ or double-click the entry you wish to ‘Edit’. Select ‘Pull’ if you prepared the return using the software in the previous year and wish to pull the data forward.
- Select Line 9B for Form 1041
- Select Line 15C for Form 1120S
- Select Line 17C for Form 1065
From the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Business Income/Loss (Sch C, C-EZ, 1099MISC)
- Select ‘New’ or double-click the entry you wish to ‘Edit’. Select ‘Pull’ if you prepared the return using the software in the previous year and wish to pull the data forward.
- Select Schedule C or Schedule C-EZ
- Select either Taxpayer or Spouse
- Input the Business Code
- Input the Schedule C Data
- Select Exit Menu until you reach Schedule C – Edit Menu
- Select Expenses
- Select Depletion
From the Main Menu of the Tax Return (Form 1040) select:
- Other Taxes Menu
- Alternative Minimum Tax (6251)
- Adjustments and Preferences
- Depletion (from K-1)
NOTE: This is a guide on entering depletion into the Keystone Tax Solutions program. This is not intended as tax advice.