WorldWide Drilling Resource

Drilling Into Money Not Boring by Mark E. Battersby A List for Planning in Face of Potential Tax Changes Good tax planning is based on the drilling operation’s current versus future tax rates. Although tax “reform” continues to loom on the horizon, so long as every drilling professional is aware there is some likelihood the tax rates, and perhaps the rules, will change next year, now is an excellent opportunity for effective tax planning - and savings. Many small drilling operations and businesses are permitted to use the cash method of accounting for tax purposes. Those using the cash basis method of accounting can micromanage the drilling opera- tion’s taxable income to minimize taxes this year, and in 2018. Expecting a lower tax bill next year? Consider these basic strategies: Prepayments: So long as the economic benefit does not extend beyond one year, prepaid expenses are usually acceptable. The complex rules allow a drilling contractor, manufacturer, distributor, or supplier to claim 2017 deductions for prepaying the first three months of next year’s shop rent or prepaying property insurance premiums for the first half of next year. Receipts: As a general rule, the income of a cash basis drilling business does not have to be reported until cash or checks are actually in hand. To take advantage of this rule, consider waiting until next year to invoice customers, thus deferring some income until 2018. Naturally, this practice should only be used for customers with solid payment histo- ries. Recurring: A number of businesses charge recurring expenses normally paid next year on business credit cards. Thus, 2017 deductions can be claimed even though the credit card bills won’t actually be paid until 2018. Payment Strategy: The old adage “the check is in the mail” is an often-employed strategy which involves mailing checks a few days before year-end. The rules require expenses to be deducted in the year the checks are mailed, even though they won’t be cashed or deposited until early next year. Naturally, for big-ticket items, checks should be sent via regis- tered or certified mail as proof they were mailed this year. Decision, decisions . . . will profits be greater next year, will tax rates finally come down, will deductions be limited? Answering these and other questions in the face of the long-promised tax “reform,” the ever-changing economy and, of course, the drilling business itself, will help when planning to reap tax savings. This requires professional assistance now, not just as the tax returns are being prepared. Mark Mark E. Battersby may be contacted via e-mail to michele@worldwidedrillingresource.com WorldWide Drilling Resource ® 7 NOVEMBER 2017