WorldWide Drilling Resource

Drilling Into Money Not Boring by Mark E. Battersby Planning for Tax Savings Last December’s Tax Cuts and Jobs Act (TCJA) presents both a challenge because of its wide-rang- ing scope and an opportunity to reap a share of that law’s much-touted tax savings. Small businesses, especially drilling businesses, should begin seeing the promised tax savings when the tax returns for the 2018 tax year are filed - but can benefit from the full potential of the TCJA only by planning now. As the end of the drilling operation’s tax year approaches, several general rules can guide it to real tax savings - savings which will last, year after year. * Don’t spend money simply to reduce that tax bill. After all, $1 spent does not equal $1’s worth of tax savings or create a $1 deduction. Also, keep in mind if those accelerated deductions result in a net operating loss (NOL), it can now only be used to offset tax bills down the road - there is no longer a NOL carryback. * Know thy accounting method. Most year-end tax strategies work best for cash-basis taxpayers. Accrual-basis businesses report all income in the year earned and all expenses in the year they are incurred. So, just because the drilling operation is paying for a 2019 expense in 2018, doesn’t always result in an immediate deduction on the 2018 tax return. * Chart a “pro forma” analysis of the operation’s tax liabilities for 2018 using the new rules, deductions, and credits. By using estimated income and expense figures, this should not be too difficult. Otherwise, the true impact of “reform” will not be known until the tax return is prepared - when it may be too late to make any moves to reduce it. Don’t forget the drilling business’s entity. Depending on whether the business files as a “pass-through” entity, such as an S Corporation or partnership, or as a regular C Corporation, significant tax savings might be achieved by changing how the operation files. Obviously, this is not something which happens quickly, meaning the numbers should be run now. Once the work is done and the alternatives tested, make sure the business is actually spending money and not just moving it around. Otherwise, how can anyone hope to know how much the tax reform bill will affect them? If the drilling operation’s tax professionals are not already involved in the planning process, now might be a good time to enlist their aid. Mark Mark E. Battersby may be contacted via e-mail to michele@worldwidedrillingresource.com February 7 - 8, 2019 Aquarius Casino Resort - Laughlin, NV Located on the Colorado River For more information visit us online: mountainstatesgroundwater.com E-mail: info@mountainstatesgroundwater.com (480) 609-3999 WHYATTEND??? • It’s a great opportunity to visit with manufacturers & suppliers, drilling contractors & pump installers, technical & consulting firms, state groundwater officials, etc. • Attend the seminars • Visit the exhibits • Earn CEU’s • Participate in the Buck Lively Scholarship auction & raffle No membership is required to attend – Everyone is welcome! It’s casual & inexpensive: Bring your employees! 36 NOVEMBER 2018 WorldWide Drilling Resource ®