WorldWide Drilling Resource

35 WorldWide Drilling Resource ® JULY 2013 Drilling Into Money Not Boring by Mark E. Battersby Tax Deductible Smarter Education Although most within the drilling industry are all too familiar with the impor- tance of continuing education, many drilling contractors and business owners ignore or fail to take advantage of the many programs and benefits created as part of the government’s increasing emphasis on education. While much of this emphasis is aimed at those enter- ing the workforce, our tax laws continue to offer write-offs for improving existing skills. One often-neglected provision of our tax law permits every drilling business to claim a tax deduction for expenditures made to educate or train employees. This is an ideal “fringe” benefit for any employee - even employee/owners. And, best of all, it is deductible by the business, and tax-free to the recipient. In general, an employer with an edu- cational assistance plan can deduct up to $5250 of educational assistance pro- vided to an employee each year. With- out an educational assistance plan, or if educational assistance exceeds the $5250 threshold, the amounts may qual- ify as a tax deduction if they are so-called “working condition” benefits. An educational assistance program is a separate written plan providing educational assistance only to a drilling operation’s employees. These expenses usually include the cost of books, equip- ment, fees, supplies, and tuition. The cost of a course or other education in- volving sports, games, or hobbies is usually not included unless required as part of a degree program or unless it has a reasonable relationship to the business operation. Although the tax law requires an actual “plan,” the rules do not require the employer to fund the plan’s educa- tional benefits. In fact, most businesses with a plan pay the educational bene- fits out of the operation’s general assets. Naturally, the benefits paid to partici- pants cannot be conditional on their making contributions to the educational assistance plan. On the downside, no educational assistance plan or program is permitted to pay more than 5% of its benefits to principal (5% or more) shareholders, or to an employee who received more than $110,000 in pay for the preceding year (unless the employee was not in the top 20% of employees). Plus, the business must provide "reasonable" notice con- cerning the availability and terms of the plan to all eligible employees. Any drilling business can claim a tax deduction for educational expenses, all the while providing its employees with a valuable, tax-free fringe benefit. Everybody profits, especially the busi- ness which benefits from smarter, better educated, or trained workers. Mark Mark E. Battersby may be contacted via e-mail at admin@ worldwidedrillingresource.com