WorldWide Drilling Resource

33 WorldWide Drilling Resource® Drilling Into Money Not Boring by Mark E. Battersby Write it all Off - or Not It’s no secret that all of the assets so integral to drilling operations are costly - and getting pricier every day. Our tax rules provide the option of immediately writing off the entire cost of most newly acquired assets. Or, with depreciation, the asset’s cost can be spread out to offset the revenue anticipated to be generated from it over its life. Basically, it all boils down to when is the best time to use the available write-offs? On the one hand, you have an immediate write-off for the entire cost of newly acquired equipment using bonus depreciation or Section 179 firstyear expensing. In an unprofitable year, or if expecting more profitable years in the future when the write-off could reduce a higher tax bill, basic depreciation might be the best option. While most drilling operations can take 100% bonus depreciation this year, and can always use the Section 179 expensing option, this, obviously, isn’t the only tax incentive for a drilling operation to purchase qualifying assets. If, for instance, equipment has an expected life of 12 months or less, it can be treated as an expense and immediately deducted. This is true even if some last more than a year, just as long as the “expected” life is less than one year. Bonus depreciation is often confused with Section 179 deductions as the two serve similar purposes. Currently, either deductions can be used to write off the total cost of asset purchases in the first year of their use. One significant difference, however, is Section 179 can be claimed only if there is a taxable profit for the year. Bonus depreciation does not require the business to report a profit. Writing off the full purchase price in the year acquired can mean saving tax dollars for that year and boosting cash flow - if the business has profits or cash flow to take advantage of those immediate deductions. After all, faster write-offs mean trading immediate savings for deductions in subsequent years, so over the life of the asset, tax savings from depreciation even out. As many drilling businesses have learned, however, the ever-changing tax laws make it difficult to get the full deductions they are entitled to for the tools, equipment, and other assets so essential to the success of the business. Seeking professional assistance is strongly recommended for every drilling contractor seeking reduced equipment costs and smaller tax bills. Mark Mark E. Battersby may be contacted via e-mail to Atlantic Screen & Mfg., Inc. j Well Rehabilitation Products j Inline Chemical Mixers j Clear PVC Pipe j Manholes j Bentonite j Filter Sock j Locking Caps j Sampling Bailers j And MUCH more! Manufacturers of Slotted and Perforated Pipe ranging from ½” - 24” 302-684-3197 E-mail: Fax: 302-384-0643 142 Broadkill Rd Milton, DE 19968 The WWDR / DBGD office will be closed July 4th for Independence Day.