Among the various alternate investment options available to accredited investors and high networth individuals, oil and gas continue to be a sought-after option. Compared to several other investments, oil and gas offer better ROI, sustainable income, and diversification. Investors looking to diversify their portfolio and looking for a hedge against market fluctuations tend to prefer investing in oil companies. Added to all this are the massive tax breaks that accompany energy investing, attracting several accredited investors towards oil and gas investment opportunities in Texas and other top oil-producing states. Continuing on the subject, in this post, we answer four commonly asked questions about oil and gas tax benefits. Read on.
1. What are the main tax benefits of investing in oil companies? The top three tax benefits that the oil and gas investment offer are primarily associated with the tangible drilling cost, intangible drilling cost and lease cost. Both small and large oil producers can claim these tax benefits. In addition to that, small business exceptions, enhanced recovery credit and alternative minimum tax (AMT) are some other benefits that oil and gas investors can personally leverage. 2. What are tangible and intangible drilling costs? The entire cost involved in buying intangible drilling equipment including labor, chemicals, mud and other related items are considered intangible drilling costs. A tangible drilling cost is the amount incurred for the purchase or lease of actual drilling equipment. Investors can claim 100% deduction of tangible and intangible drilling costs while calculating taxes. 3. What is enhanced recovery credit? A lesser known tax incentive of investing in oil companies is enhanced recovery credit. When the oil level in a well depletes beyond a certain level over time, it is difficult to recover oil from the well because of low pressure. To encourage oil companies to extract the oil from the lowest levels of the oil well, Uncle Sam provides an enhanced recovery credit of 15%. 4. What are alternative minimum taxes? The Alternative Minimum Tax or AMT is the minimum tax that the oil investors need to pay after all eligible deductions, credits and exclusions have been adjusted in the gross income. For instance, the excess intangible drilling costs for oil and gas are termed as tax preferences and are exempted on the alternative minimum tax return. The Final Word Lately, the domestic production of oil and gas has been slightly affected due to the incoming political administration’s policies. However, there are still plenty of opportunities for investors to take advantage of all the benefits of investing in oil and gas. The government is also backing oil and gas projects and energy investing in general. If you are looking for promising oil and gas investment opportunities in Texas, get in touch with a reputable investment management company to learn more.
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AuthorBrett Stave is a blogger, marketing professional, and a financial market expert. He is always keen on sharing his viewpoints and perspectives about the latest happenings in the realm of energy, technology, and entertainment investments. Brett commonly writes about lowering the risks involved with oil and gas investments as well as creative opportunities in the music, tv, and film industries. He studied Finance and Spanish at the University of Colorado, and brings with him a combined experience of 10 years in both marketing and financial industries. ArchivesNo Archives Categories |