Thinking of Investing in Oil and Gas? Know These 5 Tax Benefits!

Oil and gas investing in Oklahoma or any other place is one of the top high-yielding investment avenues. In addition, there are a number of long-term benefits attached to energy investing, including sustainability, low risk, and tax benefits. If you are thinking of investing in oil and gas, it is advisable to do your research and hire a professional to guide you in the right direction. Continuing the discussion, in this blog, we cover five tax benefits you need to know when investing in oil and gas projects.

Tangible Drilling Cost Deductions
Tangible Drilling Cost or TDC is the total amount invested in equipment, and it is 100% deductible. TDC includes a number of substantial expenses, including the cost of drilling equipment, such as wellheads and casings. Such cost deductions are capitalized and depreciated over a period of 5 years.

Intangible Drilling Cost Deductions
Intangible Drilling Cost or IDC is the total amount invested in drilling, such as labor, water, and chemicals. Intangible costs are 100% deductible for the first year and it is also important to show the deductions in the year the money was invested.

Lease Costs Deductions
Lease costs include a number of investments, including expenses sustained during procuring and negotiating lease and mineral rights. Whether you are taking up oil and gas investment opportunities in Oklahoma or any other place, it is important to capitalize and write off such expenses via a depletion allowance. Using depletion allowance over the term of a lease gives you the opportunity to deduct the costs associated with buying both, mineral and lease, rights.

Passive and Active Income Deductions
The concept of passive and active income can slide into the picture after the Tax Reform Act, which was introduced in 1986. According the the Act, working interest in gas and oil investing in Oklahoma or anywhere else was defined as active income, therefore preventing taxpayers from offsetting losses from passive income against active income. Investors can deduct costs related to working expenses, including interest, capital gain, and salary.

Depletion Allowance
Depletion Allowance or Small Producer Tax Deduction was a tax benefit introduced in the Tax Act 1990. According to the act, small producers and companies that process less than 5,000 barrels in one day. A 15% tax exemption is allowed of the gross income from oil and gas wells.

Wrap Up
When thinking of exploring energy investments in Oklahoma or any other place, it is important to know and understand the different tax benefits that you stand to enjoy. Remember the tax benefits mentioned in this blog and use the web to choose a reputable investment company.