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Oil and Gas Tax Breaks

by Paul Walker about a year ago in business
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Oil and Gas Tax Deductions - Wall Street Investments Group

Looking to invest in oil or gas, but you aren’t sure whether or not it’s a good idea? Learn how you can benefit from oil & gas tax breaks & deductions.

So, you’re thinking about investing in oil or gas, but you aren’t sure whether or not it’s a good idea.

Well, to cut a long story short – it’s a good idea.

Not just for the considerable returns you can make, but for the huge tax breaks and write offs that come with investing in oil and gas.

Let’s take a look at some of the oil and gas tax breaks you can achieve by investing wisely in the sector.

Oil and Gas Tax Breaks for Tangible and Intangible Drilling Cost

Intangible drilling costs cover everything bar the actual drilling equipment used in oil wells and production operations.

So, if the drilling equipment isn’t included, what is included?

You might think there’s little left after the equipment, but you’d be surprised. A few items labelled as intangible drilling costs include labor, chemicals, and mud grease, and these contribute amount to a considerable 60 – 80% of gas and oil production.

Most importantly for investors, they are 100% deductible in any given tax year.

Pretty good, right?

But it’s not only intangible drilling costs that reap the benefits of oil and gas tax deductions, not by a long shot. In fact, tangible costs (costs that contribute to the direct cost of drilling equipment) are also 100% deducted as a tax expense in this country for producers.

This also means that as an investor, you can enjoy 100% deduction from your annual tax as a result of tangible drilling costs, as well as intangible drilling costs.

Active vs Passive Income – Where Do I Stand?

It sounds complicated, but all these terms mean is if you have a working interest in and oil and gas production, it’s not considered to be passive financial activity in the eyes of the law.

This means that any net losses are part of your active income, which in simple terms means you can offset these costs against other forms of income you may have. So that’s things like wages, interest, and capital gains.

Put this down as a tick in the win column for backing oil and gas as investments, as the risk is significantly reduced because you can count losses into this equation, too.

What Are the Tax Exemptions for Small Producers and Investors?

Depletion allowance for small producers (and investors), allows for 15% of all of your gross income. So as long as this income comes from gas and oil wells, the costs are excluded from taxation.

This means that you pay absolutely zero tax on 15% of your investment, under the 1990 Tax Act which was put in place to benefit new and smaller investors.

The act was created to specifically entice investors into backing the drilling of natural gas and oil, and if you back a small producer of less than 50,000 barrels a day, it can work as a benefit for you.

Alternative Minimum Tax for Gas and Oil Investors

Since 1992, any excess intangible drilling or development costs, as well as deductions for depletion allowable for some drilling acreage and wells, are exempt for investors on the alternative minimum tax return as a “tax preference item.”

This is yet another oil and gas tax deduction aimed at investors in the industry, and one that is of huge benefit to those who are involved.

Never A Better Time to Invest

As a result of all of these oil and gas tax breaks and deductions, it’s never been more appealing to invest in these commodities.

Never has there been a better time to diversify your portfolio than with oil and gas, if not to reduce your tax burden alone. With significant tax breaks and write-offs available, as well as consistent cash flow and strong ROI potential, it would be a sin not to make the most out of your portfolio by diversifying with oil and gas investments.

With Wall Street Investments Group, our experts help you take advantage of all of these tax initiatives, and can create a tailored investment solution depending on your investment and tax goals.

We have the knowledge and expertise to make the most of your investment portfolio, and the fact that oil and gas are within our fields of speciality, we are confident we can help you create a steady cash-flow and return of investment.


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Paul Walker

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