Show notes
👉 Interested in learning more about oil and gas investing? Email us at ask@taxsavingspodcast.com and we’ll connect you with Nick White and the team at US Energy.
Big tax deduction or risky investment? Oil and gas investing can be a powerful tax strategy for high-income business owners, but it’s not something to jump into just because you want a write-off.
In this episode, Mike sits down with Nick White from US Energy to break down how oil and gas investing works, where the tax benefits come from, and why intangible drilling costs can create a large first-year deduction. They cover who is a good fit, how these investments can potentially offset W-2 income, business income, K-1 income, and capital gains, what the return and cash flow profile may look like, and the key risks investors need to understand before getting involved.
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Chapters:
01:00 How Oil and Gas Investing Creates Tax Benefits
Oil and gas investing is built around government incentives for domestic energy production. Investors who participate directly in drilling funds may be able to receive large first-year deductions through intangible drilling costs.
06:00 Intangible Drilling Costs Explained
Intangible drilling costs include expenses tied to the drilling process that do not have a depreciation schedule, such as labor, roads, and hydraulic fracturing. These costs can help create a large year-one deduction for qualified investors.
07:45 Offsetting W-2, Business, K-1, and Capital Gains Income
Unlike many real estate losses, oil and gas deductions may be able to offset active income, including W-2 income, business income, K-1 income, and capital gains. This is one reason the strategy is often discussed with high-income earners.
09:15 Who is Oil and Gas Investing a Good Fit For?
Oil and gas investing is generally geared toward accredited investors, including individuals with at least $1 million in net worth excluding their primary residence, or income of at least $200,000 for single filers and $300,000 for joint filers.
11:15 Key Risks Investors Need to Understand
Oil and gas investing comes with real risks, including drilling risk, pricing risk, concentration risk, and company structure risk. Look closely at debt levels, drilling strategy, diversification, and whether the company is focused on proven production areas.
17:00 Timing Your Investment Before Year-End
While an investment may qualify if completed by December 31, starting earlier gives investors more time to understand the deal, plan properly, and avoid rushed year-end decisions.
23:30 QBI, SALT, and Phaseout Planning
Oil and gas deductions may help business owners reduce taxable income enough to phase back into other tax benefits, such as the qualified business income deduction or state and local tax deductions.
26:00 Common Mistakes When Evaluating Oil and Gas Deals
Not every deal is structured the same way. Investors should avoid chasing deductions blindly and instead evaluate the partnership structure, use of debt, drilling approach, technology, risk profile, and long-term cash flow potential.
Disclaimer:
This episode was not sponsored. This conversation is for educational purposes only and is not investment, legal, or tax advice. It is not a recommendation or endorsement of any specific company, fund, security, or oil and gas offering. Oil and gas investments may involve substantial risk, illiquidity, commodity price volatility, operational risk, tax complexity, and possible loss of principal. Tax treatment depends on each taxpayer’s facts, investment structure, at-risk basis, passive activity rules, and professional advice. Past results do not guarantee future results.
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Mike Jesowshek, CPA – Founder and Host of Small Business Tax Savings Podcast
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🎙 ABOUT THE PODCAST
The Small Business Tax Savings Podcast is your go-to resource for cutting-edge tax strategies to help entrepreneurs legally slash their tax bills. Hosted by Mike Jesowshek, CPA, this show breaks down complex tax topics into clear, no-fluff insights so you can keep more of your hard-earned money.
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