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The "King Pin" Of Tax Shelters
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Wednesday, November 27, 2002 VOLUME 1 ISSUE 3 The
"King Pin" Of Tax Shelters Oil & Gas by Dana Hooper

Good news and bad news: First, let's get the bad new out of the way: tax season is approaching, again. That's right--IRS wants you; well, more specifically, they want your money. Now take a sip of something that tastes really good and wash away the bitter twang. Here's the good news: there are incredible tax benefits for persons who directly invest in oil and gas. With a bit of tax planning these benefits can be maximized and enhanced. Grab a Schedule C Income Tax Form. Investments in oil and gas, particularly, the acquisition of working interest, are considered an active investment and can be deducted from your income. There are two primary deductions; Intangible Drilling Costs and Tangible Drilling Costs consisting of drilling, reworking, labor and other services without tangible value . IDC's are expended in the year that they occur. Tangible Costs: equipment, cement, pipes, rods and etc. Tangible assets depreciate over time. This depreciation can be accelerated in year one using IRS Code 179 Form 4562. And yet another benefit to oil and gas investments is the depletion allowance. A percentage of gross income is tax free. Currently, the depletion percentage is 24% tax free income. Generally, the cost of drilling and completing a new well consists of both tangible and intangible investments. Intangible costs provide a first year tax write-off. Tangible and completion expenses may be written off over 7 to 10 years, unless one chooses to accelerate. In most cases, it is possible for oil and gas investors to deduct 100% of their total investment against their income in one year. For instance, if your total income for 2002 is $100,000 and you invest $30,000 in direct oil and gas, you are allowed to write-off the entire $30,000 and pay income tax on a $70,000 annual income. See IRS Code 179 and Form 4562. This would be maximizing your year one tangible deduction instead of depreciating it over 7 to 10 years. Of course, the higher your tax bracket, the greater the impact is on your specific situation. For investors who live in states that have a state tax this usually has added benefits. Most states follow the federal guidelines allowing for Section 179 type deductions. There are benefits on federal income taxes, social security taxes and state income taxes for oil and gas investors. Operating and production costs such as: pumping costs, tax preparation, transportation, bank fees, maintenance costs, severance, filing fees and all other expenses associated with the production of income from an oil and gas well is 100% deductible in the year cost occurred. This article is provided solely for information purposes. Federal tax laws are complicated and change frequently. Therefore, each investor is encouraged to consult with a tax specialist for their specific benefits. [PRINTER FRIENDLY VERSION] Newsletter Front Page In This Issue... Combustible Storage-- Natural Gas-- Natural Gas Outlook The "King Pin" Of Tax Shelters Published by Reef Exploration, Inc. Copyright © 2002 Reef Exploration, Inc.. All rights reserved. View Archive Created with eNewsBuilder

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Last changed: November 27, 2002