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 Caltex Group Investments, 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.

Smart Investments for Smart Investors

Gas and oil are two commodities that have always been major players in the investment industry.
The sophisticated investor knows how to make their money work for them with their investment portfolio, and that oil and gas investment is the perfect way to do just that.
This is particularly true here in the US, where the government has given considerable backing to those within oil and gas industries, introducing a massive catalogue of tax incentives for producers and investors.
So regardless of whether you’re big-time or small-scale, there are oil and gas tax deductions and benefits to be had from investing in the sector. It’s a unique time in history for investments in the USA, so you best take advantage of the situation with an investment expert you can trust.

Invest with Caltex Group Investment

Give us a call today to find out how we can help maximise the long term returns of your investments in one of our key specialist areas – oil and gas.
We look forward to hearing from you and can’t wait to discuss your personalised investment portfolio with you.
Give us a call on +1 (424) 334-5523 for more information, or let us contact you to discuss your financial future and how to make the smartest investments you can.