If you receive royalty income from mineral rights, you're reporting that income on your taxes. And if you're reporting it, you need to be able to back it up. The general rule is to keep your records for at least seven years, and in some cases, longer.

This isn't optional. It's the difference between answering an IRS question with a document and answering it with "I think it was around that much."

What the IRS Says

The IRS recommends keeping records that support items on your tax return until the period of limitations for that return runs out. For most people, that period works like this:

For mineral rights holders, the six-year window is the one to pay attention to. Royalty income involves deductions, depletion calculations, and sometimes complex ownership structures. If the IRS questions your reported income and you underreported by more than 25%, even unintentionally, they can go back six years. Seven years of records gives you a margin of safety.

What Records to Keep

For mineral royalty income, keep everything that documents what you were paid and what you deducted.

Check stubs and payment statements: Every royalty payment you receive should come with a stub or statement showing the gross revenue, deductions, taxes withheld, and net payment. These are your primary proof of income. Keep every one of them.

1099-MISC forms: Operators are required to send you a 1099-MISC (or 1099-NEC in some cases) if they paid you more than $10 in royalties during the year. This is what you use to report income on your tax return, and it's what the IRS uses to cross-reference what you reported. Keep every 1099 you receive.

Lease agreements: Your lease terms affect how income is calculated and what deductions are allowable. If the IRS questions a deduction, the lease is often the document that settles it.

Depletion records: If you claim percentage depletion or cost depletion on your mineral income, you need records that support the calculation. This includes your basis in the property, the depletion method used, and the amounts claimed each year. Depletion records should be kept for as long as you own the minerals, plus seven years after you dispose of them.

Property tax records: Ad valorem taxes paid on mineral interests are deductible. Keep the statements showing what was assessed and what you paid.

Division orders: These establish your decimal interest in a well or unit. If there's ever a question about how much you should have been paid, the division order is the reference document.

Correspondence with operators: Letters about lease amendments, pooling orders, title issues, or payment disputes can all become relevant during an audit.

The Depletion Problem

Depletion is the one area where recordkeeping gets especially important. The IRS allows mineral rights holders to deduct a portion of their royalty income each year to account for the gradual exhaustion of the resource. There are two methods:

Percentage depletion is simpler. You deduct a fixed percentage of gross income (15% for oil and gas in most cases for small producers). But there are limits based on your taxable income and the property's net income, so you need records to show the calculation.

Cost depletion is based on your original cost basis in the minerals, divided over the estimated recoverable units. This requires knowing what you paid (or what the minerals were worth when you inherited them), and tracking the depletion taken each year. If you inherited the minerals, you need a record of the fair market value at the date of the prior owner's death, because that becomes your basis.

If you've been claiming depletion for years and can't produce the records showing your basis or the amounts previously deducted, you have a problem. The IRS can disallow the deduction entirely and assess back taxes with penalties and interest.

What Happens When You Can't Produce Records

If you're audited and don't have documentation, the IRS doesn't just take your word for it. They can:

An audit without records is an audit you lose.

How MinRight Helps

MinRight isn't a tax preparation tool, but it gives you an organized record of everything you'd need if questions come up. Every royalty payment is logged with the gross amount, deductions, taxes, and net. Every property has its lease, division order, and tax records attached. When tax season comes around, or when a letter arrives from the IRS, you have one place to look.

The key is consistency. If you log each payment as it comes in and attach the check stub, you build a complete record over time without having to reconstruct anything after the fact. Seven years from now, the information is still there, still organized, and still on your computer.

That's a lot better than digging through a box of old check stubs and hoping you kept the right ones.

Still Keep the Paper

One important note: MinRight is a great way to organize and track your records, but it's not a replacement for the original documents. Keep the actual check stubs, the 1099s, the signed leases, and the division orders. Store them somewhere safe. If you ever need to prove something to the IRS, a court, or an operator, original documents carry weight that a database entry doesn't.

Think of MinRight as the index to your filing cabinet. It tells you what you have, where it came from, and what it's worth. But the filing cabinet should still exist.