WorldWide Drilling Resource

35 NOVEMBER 2022 WorldWide Drilling Resource® Groundwater Week Booth 501 Drilling Into Money Not Boring by Mark E. Battersby Planning Now, Tax Savings Later The owners, operators, and managers of most businesses in the drilling industry rely on the tax-saving abilities of professionals or software programs. Substantial tax savings are, however, largely the result of moves undertaken before the close of the tax year. Rare is the drilling operation that doesn’t purchase computers, equipment, vehicles, or other assets in the course of a year. For those considering buying a new piece of equipment, upgrading technology, etc., the time to do so is before December 31. While the tax law offers the opportunity to depreciate those items over their useful life, faster write-offs are possible for those with profits requiring reduction. Buildings and their structural components aren’t eligible nor is property that isn’t “placed in service” and not actually used in 2022. On the plus side, the cost of a vehicle or truck now qualifies for bonus depreciation. Remember, however, bonus depreciation is scheduled to be gradually phased out by the end of the 2026 tax year. This means bonus depreciation will be only 80% for assets placed in service in 2024. As the end of the drilling operation’s tax year approaches, several general rules might help guide to real tax savings - savings that will be consistent, year-after-year: • Don’t spend money simply to reduce the tax bill. After all, $1 spent does not equal $1 worth of tax saved or create a $1 deduction. Also, keep in mind that if those accelerated deductions result in a net operating loss (NOL), it can now only be used to offset tax bills down the road - there is no longer a NOL carryback. • Know thy accounting method. Most year-end tax strategies work best for cash-basis taxpayers. Accrual-basis businesses report all income in the year it is earned and all expenses in the year they are incurred. • Worker classification matters. Every drilling business must correctly determine whether workers are employees or independent contractors. Independent contractors are not, of course, subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes. While it is almost always recommended, few drilling contractors seem to get their tax professionals involved well before the end of the tax. But, how can anyone hope to know whether income deferral or accelerated write-offs will be of the most help in reducing this year’s tax bill - and the tax bills in future years? Mark Mark E. Battersby may be contacted via e-mail to michele@worldwidedrillingresource.com

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