Governments play a critical role in encouraging energy development, especially through incentives. For example, a government might try to encourage residents to utilize solar energy by offering special incentives for purchasing solar equipment. In the United States, you can take advantage of incentives for investing in the oil and gas industry.
So, what happens when you decide to invest in a project that involves drilling for oil or gas in the United States? When you do this, a significant amount of your investment can be written off within a single year.
A Look at the Numbers
For example, suppose you want to invest in an oil and gas drilling venture, and you decide to invest $200,000 of your money in that project. In the first year following your investment, you can deduct up to 80 percent of your investment amount—which, in this case, is $160,000.
Let’s say that you’re in a 37 percent tax bracket. Effectively, the U.S. government will be paying you 37 percent of your deduction—or $59,200—for investing in oil and gas. In a sense, the government itself is contributing to the project.
Now, what happens to the remaining 20 percent of your investment? As it happens, you can deduct that portion in the coming years. As a result, you will have been able to deduct the entire investment, and you’ll have benefited on your taxes to the tune of $74,000.
In addition, not all of your income on the project will be taxed. In fact, because of the 15 percent depletion allowance, you’ll only need to pay taxes on 85 percent of the income you earn from the oil and gas project you’ve invested in.
As you may have guessed, identifying every deduction you are entitled to can be a challenging task. That’s where The Royce CPA Firm can help! Our tax preparation services will ensure that filing your taxes goes as smoothly as possible. Call (520) 321-4626 for more information.