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4 Reasons Oil And Gas Investments Can Buffer You From Tax Law Changes
With recent tax regulation changes, many investors may not see the same tax consequences for all their investments. If you worry about how your portfolio may be affected by the reduction of itemized deductions, changes in deductibility of expenses, or limitations in investments, here are a few reasons this is a great time to look into oil and gas investments.
Expense Deductions. For investors who itemize deductions, investment expenses are a good tool to reduce taxes. With normal investment fees no longer being deductible, though, you should focus on types of expenses that can still reduce taxes. Tangible drilling costs and equipment leases, for instance, remain deductible against your investment gains. Immediate deduction of capital costs is another addition that can help companies and their shareholders by reducing taxes after capital construction costs.
Lower Corporate Taxes. One of the main goals of the tax reform bill was to lower the base of corporate taxes. While this doesn't aid gas investors directly, it does boost the potential of profits passed on to share owners. Since many oil and gas companies operate at a loss with higher tax rates — and therefore can't pass along profits to investors — this is likely to boost your investment checks. In addition, the elimination of the corporate Alternative Minimum Tax (AMT) may help boost earnings by lowering taxes.
Working Interest Deductions. A "working interest" in gas production has tax advantages due to being labeled as active income. Passive income is limited as to how you can deduct losses and how much you can use as a deduction. Active income doesn't have these rules, so you can offset more wages, portfolio income, and self-employment income. Buying a working interest in wells or gas production facilities may not cost much and could boost your profits significantly over simply purchasing stocks. Talk to your financial planner to learn more.
Diversification. Investing in oil and gas production can be a trickier investment than many more traditional stocks and bonds, but it offers risk management as well. Since the stock market operates in a different way than the gas and oil markets, your portfolio will be diversified to protect against fluctuations in both. And because demand for safe alternatives like gas is growing, you can have confidence in these investments.
Ready to learn more about oil and gas investments? Talk to an experienced financial planner today and start reaping the rewards of natural resource investing.