Saving on Taxes with Oil and Gas Investments
As tax season draws to a close and we all wish our refund could be bigger, now is the perfect time to consider ways to do better in years to come. It’s never too early to think about maximizing your returns for next year, and one thing to consider is investment in oil and gas drilling funds.
In a recent Physician’s Money Digest article, the author explains several ways to optimize your portfolio with tax-minded objectives. Our Oil and Gas investments are ideal for investing with these sorts of goals in mind. In addition to the six points the author makes, including portfolio diversification and long term holding periods, there are additional ways to reap tax benefits with these partnerships.
The tax benefits of oil and gas investments are typically applicable the year that the investment is made, even if the capital isn’t put to use until the following year. These investments are unique in that up to 100% of the initial investment can be written off over the time that the funds are used to drill the well. There are two types of deductions that make this possible, the tangible and intangible costs of drilling. The initial and largest portion of the write off is from the intangible costs of drilling (IDC). These include the chemicals, labor, etc. costs that are needed for well production. This usually amounts to 65-80% of the total investment and is often utilized in the first year. The tangible costs of drilling (TDC) amount to about 25% of the investment, and are deducted over about seven years, or the time needed for the well to be built and start producing.
The totals of the IDC and TDC benefits can add up to a refund of most, if not all, of the initial capital over several years. In addition to these up front tax benefits, the long term returns over the life of the well are partially tax sheltered as well, adding to your ROI.
As you embark on the new tax year and reevaluation of your long term financial goals, remember to consider the benefits of adding oil and gas investments into the mix.
Please feel free to contact our office if you have any questions or comments about this article.