Tax Benefits of Investing in Oil and Gas Exploration Ventures:
Accredited Investors’ best tools to reduce their ordinary taxable income, also called active income, are the tax benefits inherent in oil and gas exploration ventures. These tax benefits allow private investors to subsidize a substantial investment portion into exploration and production projects. Our United States Congress created these tax benefits to encourage investment toward strengthening America’s global energy position. Since these tax benefits substantially reduce at-risk dollars, they enhance the project’s economics and present a valuable alternative for Accredited Investors’ tax dollars.
High-income individuals in the highest Federal income tax bracket pay +/- 45% tax on their income when including State income tax. The alternative of putting your tax dollars to work for you happens when your investment creates an immediate and substantial tax deduction. This tax deduction directly reduces your ordinary taxable income for up 100% of the investment amount. For example, a tax bill of 45% on $100,000 would be a complete loss of $45,000. However, by investing that $100,000 in an exploration venture, you would save $45,000 on your tax bill, therefore only risking $55,000. Also, this investment secures partial ownership of an oil and gas venture capable of producing long-term monthly cash flow, considerable upside, and ongoing tax benefits.
It is imperative that you consult with both a Millennium company representative and your accountants to appreciate best the tremendous value these tax benefits provide for the right investor. You can reach us at 210-960-1000.
Here's What The Tax Code Says:
1. Active vs. Passive Income:The Tax Reform Act of 1986 introduced the Tax Code the concepts of "Passive" income and "Active" income. The Act prohibits the offsetting of losses from Passive activities against income from Active activities. This same Act states that working interest in an oil and gas well is not a Passive Activity. Therefore investors can utilize deductions to offset income from salaries, business, portfolio, capital gains (See Section 469(c)(3) of the Tax Code).
2. Intangible Drilling Cost Deduction:
The intangible expenditures of drilling (labor, chemicals, drilling costs, et al.) are considered Intangible Drilling Costs (IDC). They are 100% deductible in the year in which incurred. These expenditures are the combined amounts of the Subscription & Acquisition Funds and the Drilling and Testing Funds found in our projects' Investment Summaries. These deductions are available in the year you invest, even if the well doesn't start drilling until March 31 of the following year. The project will usually generate additional IDC tax write-offs in the completion phase of a successful well (See Section 263 (c) of the Tax Code).
3. Tangible Cost Tax Deduction:
The amount of the investment allocated to the necessary equipping of a successful well, the Tangible Costs (TDC), are also 100% tax-deductible. Investors can deduct the remaining tangible costs through straight-line depreciation over an amortization period.