In the following IRS source, it mentions that Treas. Reg. section 1.612-4(a), stipulates that intangible Drilling Costs(IDC) can be claimed as a deduction (expense) on the taxpayer's return for the first taxable year in which the taxpayer pays or incurs such costs. No formal statement is necessary.
If this is your first year, reporting this, you can report this as an expense in the manner you described above. If you choose to do this in your first year, you will need to report the IDC as an expense in all future tax returns when this activity is reported.
If you choose to capitalize it though, you will need to report it as an asset, which is listed in the expense section when reporting your Schedule C income. This is if you are using the online version. If using Turbo Tax Home and Business software product, there is a Business Asset section where you will enter this information.
There are a couple of considerations to be made as you weigh your decision whether to expense or capitalize.
- Was a proper election to deduct IDC made?
- Are the costs in fact intangible and not depreciable asset costs such as in Tangible Drilling Costs.
Be sure to read the IRS source link that I included above for further information.
@Jelvmoore
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