Mining or extraction operator taxes and deductions

Depletion is the deduction that exists nowhere else. You deduct for the resource being used up, and the percentage method is calculated on revenue rather than on what you paid. So over a mine's life the total deductions can exceed the original investment.

Exploration and development costs have elections attached that decide whether you deduct now or capitalize, and the choice is worth modeling before you make it because it is not freely reversible. Reclamation obligations are deductible when the work is done rather than when the liability arises. Heavy equipment is Section 179 property subject to the annual cap.

The deductions with a rule attached

These are the lines where the answer is not simply "keep the receipt"each has a cap, a percentage or a test that decides how much of the spend you actually get:

Equipment: Section 179 property. Deduct the whole cost in the year it goes into service rather than spreading it over the asset's life, up to $2,560,000 a year, and 100% bonus depreciation is now permanent. The catch is the business-use test: anything used more than 50% for the business qualifies, and you deduct at that percentage rather than the full price. So anything you also use at home comes off at the share that is genuinely work, not the whole invoice.

The rest of the mining or extraction operator deduction list

Ordinary and necessary business expenses, deductible in full in the year you pay them, provided they are genuinely for the business:

Depletion
Permits and licenses
Staff wages
Fuel
Reclamation costs
Liability insurance
Exploration costs

Worth knowing

Depletion has no equivalent in any other industry: you deduct a share of revenue for the resource itself, sometimes beyond what you paid for it.

That is what is specific to this trade. The larger deductions are the universal ones, see the full checklist.

What each deduction is worth to you

On $100,000 of profit with no state income tax, $1,000 deducted saves $305, 30.5%, because it comes off self-employment tax and income tax together:

Net profit	Saved per $1,000 deducted	Effective
$40,000	$231	23.1%
$100,000	$305	30.5%
$200,000	$297	29.7%

The last row is worth less than the one above it, and that is not a mistake: past the Social Security wage base the self-employment part of the saving drops from 15.3% to 2.9%, and the higher income-tax bracket does not quite make up the difference. A deduction is worth most in the middle.

Add a state income tax and every row rises. The 1099 calculator applies that layer.

Where this comes from

The rules on this page that are specific rather than general are cited below. Follow a link to read the provision itself rather than taking our word for it:

Percentage depletion is computed on gross income from the property, capped at 50% of taxable income from itIRC 613(a), 613(b)
The exploration election cannot be revoked without IRS consent, and is recaptured when the mine reaches producing stageIRC 617(a)-(d)

What these words mean

Section 179: A rule letting you deduct the whole cost of equipment in the year you start using it, instead of spreading it over the years you own it.
Depreciation: Spreading the cost of something long-lasting, a vehicle, a camera, a tractor, across the years you use it, rather than deducting it all at once.

General information about how these deductions work, not tax advice. Whether a particular expense is deductible for you depends on facts this page does not have, check with a tax professional before claiming anything listed here.