It depends whether it is a working interest or royalties when determining the correct way to report the income.
If you are an independent contractor or self-employed in a business related to a working interest in the oil or gas, you must report the royalty income on Schedule C instead of Schedule E and generally will be subject to self-employment tax. If your royalty is a working interest, the income is listed in Box 1, Form 1099-NEC.
Expenses are allowed on either form (Schedule C or Schedule E).
If you believe it is royalty Income instead of a working interest then you can use Form 1099-MISC to enter in Box 2, Royalties, with the amount reported on the 1099-NEC as if it was reported on Form 1099-MISC. TurboTax takes specific form information to the tax return (Schedule E) but the only way to get the royalty income on Schedule E is to enter the amount as if it were reported on a 1099-MISC.
Entering the income reported on a 1099-MISC instead if a 1099-NEC could end up generating a letter from the IRS because the income wasn't reported on Schedule C.
You can be prepared for this easy explanation that the royalty income reported on Schedule E was incorrectly reported on Form 1099-NEC. Because it was royalties and not a working interest, it was reported correctly.
Thank you Diane!
It is always so confusing! This is the first year receiving 1099-NEC. We also receive a 592-B (Nonresident Withholding Tax Statement which “Rents or Royalties” is check as the type of income. However on the 1099 - NEC it is WI. We are not self employed. The WI expenses are approximately 50% of the Gross amount. Thank you for any insight!
It's either Schedule E or Schedule C based on the nature of your activities in collecting the income. If you were not involved in the extraction of the oil/gas, then that suggests you were just collecting a royalty, and as @DianeW777 indicated in the prior post, you would report the income on Schedule E as a royalty. You would enter the income as if you had a 1099-Misc. You don't want to enter this income on Schedule C if it is not income associated with self-employment.
To enter this income as if it was reported on a 1099-Misc, enter it under Less Common Income (TurboTax online) and select Miscellaneous Income. In TurboTax CD/download, under the Wages & Income tab, scroll down to Less Common Income and select Miscellaneous Income and enter your information.