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article imageOp-Ed: Tax benefits for direct oil and gas Investments

By Forstine Carter     Oct 16, 2011 in World
Investing in oil and gas specifically can entitle you to a number of tax benefits. All these benefits can range from tax credits for prospecting and beginning of specified formations, to large in advance discounts for intangible drilling expenses (IDC).
The discounts are given out for the checking phase, completion of the well and the cost of devices or assistance rendered during the drilling procedure, which are not salvageable. By investing directly in gas and oil, some of the tax benefits which a firm is bound to get contain:
Depletion Allowance-When a well commences production, investors are permitted to keep some of the gross income created from the sale of gas or oil. The investors do not need to pay tax on this initial gross income. The tax benefits are made probable by way of a depletion discount. Investors can make use of two types of depletion: statutory/percentage depletion and cost depletion.
Depreciation Tax Benefits-While some services and materials have no savage worth during the drilling period of the gas and oil well, the equipment utilized to complete the well as well as which used in production is usually salvageable. This equipment normally depreciates over a 7 year duration dependent on the Modified Accelerated Cost Recovery methods (MACRS). Examples of tools that fall in this group consist of pumping units, well head and tree tanks, and casings. The price for all these equipments and tangible completion usually amount up to 25% to 40% of the total expense of the well.
Intangible Completion fees Tax Benefits-These are mainly related to expenditures incurred during the completion duration. All these costs are usually not salvageable, for instance completion rig time, labor, fluids and others. The expenses generally amount to about fifteen % of the total expense of the well and are generally deducted at the end of the tax year they were incurred.
Intangible Drilling prices (IDC) Tax Benefits-When a gas or oil well is drilled, there are quite a few expenses that may be deducted quickly. Such are non-salvageable expenses whether or not oil or gas is found in the well. A few examples of such costs are drilling fluids, drilling rig time, labor among others. The IDCs usually amount to 60 Percent to Eighty Percent of the total price of the well. Investors normally have to offer a part of their investment for drilling reasons before the drilling operation begin. Tax benefits are applied to this part of the investment at the end of the tax year through which the intangible expenses were incurred.
Individuals and firms that invest immediately in gas and oil prospecting and manufacturing are entitled to a variety of tax advantages. These benefits commonly come at the end of the tax year and may be applicable to both salvageable and non salvageable equipment and costs.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
More about Taxes, Income, Income tax
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