It’s already November, and you’re probably beginning to think ahead to next year’s tax preparations. But, stop for a moment: If you could invest a certain sum of money this late in the year, yet still deduct nearly all of your investment as a business expense, wouldn’t you jump at the chance?
Let’s take it a step further. Imagine if that same investment could offset your other self-employed income for tax purposes. And when your investment begins to pay off, that income is only subject to the regular income tax.
Does all of that seem nearly too good to be true? Well, with the right planning and proper investment in the oil and gas well industry, it definitely isn’t.
In fact, by investing directly in oil and gas, you can realize more tax deductions than perhaps in any other investment field. It’s also important to note that you don’t have to take a loss to claim these advantages.
In addition to the aforementioned positive aspects that investing directly in oil and gas wells can bring, you’ll be able to enjoy the following tax deductions as well:
- Operational Costs
Investments like oil wells will naturally come with operational costs. For instance, if the working interest is owned by a limited partnership, and you’re investing in the role of a limited partner, you’ll probably pay for a proportional amount of the organizational costs incurred when the partnership was formed.
These costs are tax-deductible, just like with any other formed business entity.
- Intangible Drilling Costs (IDCs)
When a well is drilled, there is a certain percentage of expenses that simply have no salvage value. Whether it’s labor or fuel costs (or anything not directly related to the machinery or equipment used to drill), it’s all factored into the well’s intangible drilling costs. And these can all be fully deducted as a cost of the operation, in the year that they occur.
This is a fairly significant deduction, as IDCs can add up to between 65%-85% of your overall investment.
- Tangible Drilling Costs (TDCs)
Tangible Drilling Costs are simply costs that are directly related to your drilling equipment, and represent things like wellheads, pumping units and other similar items. Even though these particular costs must be depreciated over a seven-year period, they’re still 100% deductible.
Basically, anything physical that’s used in the completion and production of an oil or gas well can be depreciated and benefit you from a tax perspective.
Don’t wait until next year!
There will always be a reason in the back of your mind to put off your investment goals until “next year.” Don’t let those excuses stem from a simple misunderstanding of your potential tax benefits! Reach out to us today, and line up these tax advantages for your investment portfolio before 2015 is over.