Gas Drilling Tax Benefits
Because sophisticated investors want the highest return on investments, they often seek opportunities that will give them tax advantages. There are a great many benefits to investing in drilling for natural gas, but are there tax benefits for investing in gas? In fact, you can take advantage of gas investing tax breaks, and this is an important consideration when you or your investment group are thinking about potential natural gas investments. Here are a few things you should know about gas drilling tax benefits.
Why Are Gas Drilling Tax Breaks Available?
Why are you able to get tax breaks by investing in the gas drilling industry? You may hear people complain about American dependence upon fossil fuels, but a big part of that problem is dependence on foreign fossil fuels. By offering tax breaks for people who invest in gas drilling in the United States, the government enhances the domestic production of energy sources and reduces that foreign fuel dependence.
What Types of Gas Extraction Tax Breaks Are Available?
Quite a few tax benefit options exist for those wanting to invest in the gas drilling industry. Investing in natural gas drilling will result in tax benefits that aren’t found anywhere else in the tax code. These tax benefits vary in relation to each particular investment type. Four major investment types in the sector that will result in gas drilling tax breaks include:
- Partnerships: Investors often choose limited partnerships for a natural gas drilling investment, as such a formation limits liability. Tax advantages are available with this type on a pass-through basis, allowing investors to sidestep double taxation. The taxes in large part rely on the investments and resulting revenues the partnership makes.
- Stocks and American depositary receipts(ADRs): In this investment type, people can invest in companies drilling for gas. If you’re an investor, you should know that you probably won’t directly receive tax breaks just for becoming a shareholder, but you can have less risk with ADRs and stocks than with direct investment. In addition, the natural gas drilling company you invest in will likely receive tax advantages for production, which means you can indirectly benefit through increased company profitability and stock value.
- Royalties: People who own land where natural gas is found can be paid royalties that are 12 to 20 percent of gross production. The royalties are reportable, however, which means landowners have to invest actively in production or in another way to get tax breaks.
- Working interests: Working interests are eligible to receive several tax breaks. Income from them has to be reported on Schedule C of the 1040 Form, and it’s subject to self-employment tax.
There may be even more tax advantages available depending upon the specific situation. If you have been on the fence about whether or not to invest in natural gas drilling, the tax advantages may just put you over the top. Contact Viper Capital Partners in Houston, Texas to learn more about the tax advantages of gas drilling today.