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One of the best tax advantages made available to small producers and their investors is thanks to the Enhanced Oil Recovery Credit, the percentage depletion allowance. This deduction, which is available only for those with domestic oil and gas holdings, allows for 15 percent of all gross income from oil and gas wells to be excluded from taxation. Small producers and investors are allowed to claim the deduction for as long as their oil or gas well is generating income.
Another tax benefit is tangible drilling cost deductions. The total amount of actual dollars spent on the investment that were allocated to the equipment is 100-percent tax deductible and may be deducted as depreciation over a seven-year period.
Also, costs incurred that include just about everything on a project but the actual drilling equipment, such as labor, supplies, and other items necessary for drilling are considered intangible. These intangible drilling cost deductions, which usually eat up about 80-percent of the total cost of drilling a well, are allowed to be taken at 100-percent as well, but only during the year incurred.
Many of the administrative and operational costs including administrative, accounting, sales, legal, lease costs and lease operating are all 100-percent tax deductible, as well.
These are just a few of the examples of the tremendous tax benefits available to oil and natural gas investors today. This type of tax shelter means that an investment in oil and natural gas today is not only a smart strategy for any investor looking for security in investing for the immediate future but it also provides a safety net for financial stability long-term.
This type of tax shelter means that an investment in oil and natural gas today is not only a smart strategy for any investor looking for security in investing for the immediate future but it also provides a safety net for financial stability long-term.