WorldWide Drilling Resource

Drilling Into Money Not Boring by Mark E. Battersby As the 2016 Tax Year Ends Many of those in the drilling industry should already be turning to their advisors for tips and strategies on how to reduce their drilling operation - and their own - tax bill. Fortunately, every drilling professional has at their disposal several year-end moves to help reduce the annual tax bill. These include deciding a proper time for income and expenses. Generally, a profitable business will want to accelerate deductions and defer in- come. By deferring (postponing) income to a later year, it may be possible to minimize the current income tax liability. Thus, when the deferred income is eventually reported, in all likelihood the drilling operation will be in a lower income tax bracket. Assuming the drilling operation is eligible, cash-method accounting permits micromanaging the operation’s 2016 and 2017 taxable income to minimize taxes over the two-year period. If business income will be taxed at the same or lower rate next year, several moves to defer taxable income until 2017 exist: , Pay expenses with checks mailed a few days before year-end. Expenses can be deducted in the year the checks are mailed even though they won’t be cashed or deposited until early next year. For big-ticket expenses, sending checks via registered or certified mail is recommended to provide proof of timely mailing. , Before year-end, prepay some expenses. As long as the economic benefit from the prepayment does not extend beyond the earlier of: (1) 12 months after the first date on which the business realizes the benefit, or (2) the end of the next tax year. This rule allows 2016 deductions for prepaying the first three months of next year’s rent or insurance premiums for the first half of next year. , The general rule for cash-basis businesses is they don’t have to report income until the year cash is received or checks are in hand. To take advan- tage of this rule, consider waiting until near year-end to send out some invoices to customers. This will defer some income until 2017, because the operation won’t collect until early next year. Needless to say, this idea should only be used for customers with solid payment histories. While 2017 is knocking on the door, there is still time to make the moves which could save the business - and you - money. Remember however, all year-end moves work best when discussed with the operation’s accountants, tax profession- als, and advisors. Mark michele@ worldwidedrillingresource.com '6 2'& $*32 (1/- : 3/ : ! 5'1 $*32 *. 23/%+ (/1 *, #2 !#3'1 !',, '/3)'1-#, 70,/1#3*/. /.2314%3*/. '3% $*32 )#--'12 #.& )#--'1 $*32 3#$* , *9'12 *. #.8 2*9' #.8 %/..'%3*/. /,' /0'.'12 '$4*,&" )/,' /0'.'1 '13*%#, /1*9/.3#, /1 4$2 6*3) #.8 %/..'%3*/. 4$ #&#03/12 -#&' 3/ (*3 " .''&2 & ' +-* -( &/ #-+*/&"- +) "(( %+*" 3 222 -( &/ +) +0- 2&#" (("! .%" . &! 5 /7. #+- 4+0 /+ 04 (( +# 4+0- &/. *! !-&((&*$ .0,,(&". #-+) &/ "-1& " 6 17 WorldWide Drilling Resource ® DECEMBER 2016 Construction and Geotechnial drilling will be our editorial focus in February. Have an article idea? Submit it to us today. Call Bonnie at 850-547-0102 or e-mail bonnie@ worldwidedrillingresource.com