WorldWide Drilling Resource

31 JUNE 2022 WorldWide Drilling Resource® Drilling Into Money Not Boring by Mark E. Battersby Automation 101 Automation for a drilling business? There is a common misconception that automation means only robotics, but automation can be as simple as a set of tools included within common business software programs. Best of all, Uncle Sam, in the form of our tax laws, stands ready to help foot the bill for every level of automating every business. Business automation software can either be an all-in-one platform that allows for the automation of different business operations, while stand-alone automation solutions are dedicated to automating a specific business operation. The prospect of investing in automated equipment or even the basic software necessary to implement automated processes can appear daunting. Those costs might be more manageable if the tax breaks available to offset the initial costs are considered. After all, the Internal Revenue Service considers much new equipment, computers, and software to be tax deductible business expenses. The cost of purchased software, for example, can be deducted in the year it is placed in service. If the drilling operation opts out of the 100% bonus depreciation write-off or the Section 179 first-year expensing election, costs are amortized over the three-year period beginning with the month in which the software is placed in service. Of course, if the software was purchased as part of a hardware purchase in which the price of the software wasn’t separately stated, the software cost is treated as part of the hardware cost. It's a similar story for a drilling operation requiring specific software. Software costs or subscription charges are tax deductible. Monthly fees for accounting software, for instance, can be tax deductible. Software subscriptions, like software licenses, count as legitimate business expenses. Software subscriptions, office supplies, phone bills, and advertising can be categorized as business expenses. Some software is considered to be “developed,” that is designed in-house or by a contractor who isn’t at risk if the software doesn’t perform. Unfortunately today, the only allowable treatment requires the business to amortize the cost of developed software over a five-year period beginning with the midpoint of the tax year in which the expenditures are paid or incurred. By automating repetitive business processes, the drilling contractor, managers, and employees are freed up for more valuable tasks than those which can be completed by computers. Fortunately, guidance is available from both the operation’s accounting professionals, as well as from a number of computer and automation specialists. Mark Mark E. Battersby may be contacted via e-mail to