Tax Benefits of Investing in the Oil Commodity Market

Investors are always excited to invest in the oil commodity market because it is a profitable investment for the future and also provide additional tax benefits. Everybody loves tax benefits on investments and hence, good news for investors is that they are able to have a lot of tax benefits by investing in the oil commodity market. However, you should seek advice of Your Personal Financial Mentor before investing in an oil commodity market because he can guide you which investments are more profitable and less risky.

There are intangible costs of drilling a well which includes almost everything except the cost of actual drilling equipment. These costs include the cost of chemical, labor, grease, mud, supply and any other cost that is required for a drilling process. They constitute almost 60 to 80 percent of the total expenses and are 100 percent deductible in the year they are incurred and this deduction is available even if the well is not productive. There are also intangible completion costs, such as material, labor, supplies, rig-time and fluids that are required to complete the drilling operation. These costs are also fully deductible in the year they are incurred.

When an investor invests in an oil commodity market, he gains exposure to a variety of products and therefore, is able to achieve a well diversified portfolio that provides high profits and lower the risk of losses. An investor also gets tax benefits from the government because the oil is used for a variety of purposes. It is used in plastics, building materials and fertilizers. Oil is playing an important role in the economy and an economy will fall without its sufficient supply. This is the reason why governments encourage investors to invest in the oil commodity market as it brings in the money that can be used to extract oil from wells and other transportation cost.

A tax deduction is also offered on gross revenues for oil depletion. There are two methods: a percentage depletion method and a cost depletion method. Percentage depletion is a commonly used method and allows a 15 % deduction from gross revenue whereas, cost depletion is a complex method but it also allows a tax deduction on the revenue. However, there is a special provision in the tax code for companies that produce less than 50,000 barrels of oil on a daily basis. Tax deductions are also available on lease operating cost, administrative cost, and cost of purchase of mineral and lease rights.

Categories: Oil Commodity Market

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September 2, 2013 Tax Benefits of Investing in the Oil Commodity Market