By Teresa McUsic

It’s tax season again, and whether you’re reporting a Barnett Shale gas bonus as income or deducting state and local sales taxes, Texans should be on the lookout for unusual tax questions this year.

At the top for many in Tarrant and surrounding counties are the thousands of bonus checks that many households received this year as part of signing away the rights to the minerals under their properties.

Those bonus checks are to be counted as income, and are subject to federal tax, said Walter Hatter, a Fort Worth CPA with Hatter and Associates. The income must show up on Schedule E of Form 1040.

So for those gas lease owners who generally file the easier 1040EZ, you will have to file the longer 1040 this year to report that bonus check.

“You cannot file a 1040EZ and attach a Schedule E,” he said. “There’s no place to put it.”
Another complication many taxpayers will face is where to report the bonus check on Schedule E.

Hatter said it should be counted just like rental house income and placed on line 3 of Schedule E as “rents received.”

Income from a gas royalty check is a bit more straightforward. It should be reported on line 4 of Schedule E, where it says “royalties received,” he said.

Another thing for taxpayers to be on the lookout for is Form 1099 from your gas drilling company. This form, which is also sent to the IRS, shows the amount of bonus and/or royalty you received in 2007.

Not all drilling companies are filling out the form correctly, however, Hatter said. The gas income should be placed on line 1, 2 or 3 of Form 1099—not in Box 7, which is for non-employment compensation Hatter said.

“If it’s in Box 7, call the issuer and get them to reissue it,” he advised. “You should dispute it.”

If you had an interest in a gas well, which is different than a lease, or if your property has been damaged in any way from the drilling, Hatter recommends hiring a preparer to handle those more complex tax issues.

Here are three more things to look for while doing ’07 taxes:

1. Taking a tax credit? You may have to wait to file. In December, Congress once again made tax changes in the 11th hour, making paper forms mailed out by the IRS once again out-of-date and sending the agency scrambling to reprogram their computer system.
Because of the change in tax law, aimed at reducing the number who qualify for the Alternative Minimum Tax, any taxpayer who claims one of four credits on their taxes must wait until Feb. 11 to file, the IRS said.

Returns that must delay filing until Feb. 11 include those with any of these four credits and forms:
• Form 8863, Education Credits
• Form 5695, Residential Energy Credits
• Schedule 2, Form 1040A, Child and Dependent Care Expenses for Form 1040A Filers
• Form 8396, Mortgage Interest Credit

The good news is that the IRS is on schedule to begin receiving those forms on that February deadline, according to Clay Sanford, IRS spokesman in Dallas.

Also computer software like TurboTax with online support will automatically update the last minute change, said Colleen Gatlin, spokeswoman for Intuit, the makers of TurboTax.
“We’re ready to go,” she said. “If you have one of these tax credits and use our software, we will send you the updated changes in law to your software via the Internet.”

2. State and local sales tax deduction lives on for now. Texans have been able to deduct their sales tax since 2005 after an 18 year dry spell, and will again for ’07 filings. Be sure to add up your sales receipts, or use the charts provided by the IRS for an acceptable number. And don’t get too used to the deduction, it expired again at the end of last month so it won’t be an option for ’08 filings next year unless Congress reinstates it.

Remember that the IRS table is just for state sales tax estimates and does not include local sales tax, which is 2 percent in Fort Worth for example. If you want the full deduction under the tax law, then you have to add-on your local tax rate, in a worksheet provided by the IRS in Form 1040.

If you don’t know your local sales tax, it’s pretty easy to find. First go to the state comptroller’s website at www.window.state.tx.us. In a quick link on the right side of the home page, go to “Local Sales Tax.” Enter your city and county and the rate assessed to your area will pop up.

And don’t forget the other major add-on to the IRS tables built into the tax law-- the sales taxes of cars, boats, aircraft, mobile or prefabricated homes or home building materials purchased last year. Only the state sales taxes can be added on to the IRS table for these purchases, though, not the local taxes

3. Get more with the EITC. The IRS estimates that up to 25 percent of eligible taxpayers fail to claim the Earned Income Tax Credit nationwide, Sanford said. That figures holds true especially in Texas. The EITC is a refundable federal income tax credit for low-income working individuals and families established in 1975.

The IRS says for 2007, the maximum credit on the EITC is $4,716 with two or more qualifying children; $2,853 with one qualifying child; and $428 with no qualifying children.
To qualify, you must earn at adjusted gross income of less than $37,783 ($39,783 married filing jointly) with two or more qualifying children; $33,241 ($35,241 married filing jointly) with one qualifying child; or $12,590 ($14,590 married filing jointly) with no qualifying children.

Free Tax Help
* Star-Telegram 4th annual CPA hotline. Call the Star-Telegram at (817) 390-7333 for English and (817) 390-7336 for Spanish from noon to 4 p.m. on Feb. 10 to get your tax questions answered for free from the Fort Worth Chapter of the Texas Society of CPAs. A Spanish-speaking CPA will be on hand.

* IRS customer service hotline 800.829.1040 or go to agency’s website at www.IRS.gov.