Every time there is a problem, the government wants to raise more money. There are actually ways to pay the government less taxes and it’s legal. Following the current tax code, Tim shares some tax deals where you can get phenomenal tax deductions. He also touches on the tax benefits of oil and gas, putting money in oil and gas investments, and mentions a Texas-based corporation you can look into which is involved in primary and secondary production, acquisition, development, and exploration of oil and gas projects in Texas, Louisiana, and Oklahoma.
Listen to the podcast here:
Why A Certain Tax Deal Is Now Even Sweeter
What’s going on in the economy? What’s going on with your portfolio? The stock market has been somewhat down and pretty much making the year flat. Making it an even year. It might be up a little bit in your 401(k) if you’re still working maybe because of your contributions. We’ve wasted a year and there are things we can do to combat that. I come in here and I talk about certain parts of the tax code. I believe that if you can think about working and thinking about retirement. Think about retirement as sticking a flag on the top of the mountain. It’s taking you 30, 40 years to do that. If you can think of climbing the mountain as your working years, 25, 30, 35, 40, 45 years maybe 50 years. If you start working when you were twenty and you retire in your 70s, we’re talking 50 years. The time is a little different for each person but in retirement, you reached the pinnacle of the mountain. You reached the peak of the mountain. You stick the flag on top of the mountain. If you were climbing a mountain for joy, I’m sure people take pictures of the mountain and things as they’re going up the mountain. Climbing the mountain those 30, 35, 40, 50 years of working, that is your accumulation. You are accumulating money that entire time for the purpose of retirement.
You retire, now what? It’s like if you climb a mountain and you get to the top, what happens? It’s time to come down the mountain. Coming down the mountain in retirement, we call that the distribution side. If climbing the mountain is accumulation, then distribution is coming down the mountain. You have to do some things ahead of time to plan for that. I have seen people do everything right. They work their butts off for all those years during the accumulation period and then because of the government, the way the tax code is structured, and the laws, they get hammered in taxes. There are things you can do before you reach retirement to set things up, where you can avoid paying some taxes. I’m talking about legally avoid. I’m not talking about tax fraud or evasion but being SMART and the acronym is Strategic Moving Around Retirement Taxation. You can’t do it two months before retirement. It takes a little time. It’s very frustrating because the IRS should do a better job of educating the public on things in retirement.
At the same time, I know they don’t want to because they want you to pay taxes. The government wants us to pay higher taxes. We need to pay taxes for certain things. I’m all about certain things in infrastructure. Louisiana has the highest state sales tax in the nation. Our government does a terrible job of spending money and I don’t think the answer is giving them more money to spend. The elitist, these pompous politicians which not all but most are, they think they’re better than the working class. When you’re a politician, you’re not working. It’s a joke. You don’t go out there and work. These people pass laws that don’t affect them. They pass laws like Obamacare. There are other things they can do. They pass laws for Social Security and yet they exempt themselves from the very laws that they pass. I can’t do that. That’s why I’m only affiliated with a couple of strategies for people’s money. I have my own personal money in all three. I don’t have a briefcase full of 87 different mutual funds or different annuities. You got to be careful about annuities. They have a small place for the exact right person but annuities are oversold. A lot of things are oversold. I’ve learned a lot from annuities. I’ve never sold one but you have to know what’s going in and they lock your money up for a long time.
The Tax Code
If that’s what you want, know that going in there they’re going to lock your money up for a long time. If you’re looking for something other than what Wall Street has to offer, if you’re looking for tax deductions, if you’re looking for consistent income get educated. Learn what’s out there that you’re not going to hear about from your traditional guy or traditional Wall Street broker. I’m a big fan of oil and gas. We don’t drill wells for tax deductions. We call that lagniappe. Tax deductions are real and I’m a big fan of IRS Section Tax Code 469(c)(3)(a). “The term passive activity shall not include any working interest in any oil or gas property which the taxpayer holds directly or through an entity which does not limit the liability of the taxpayer with respect to such interest.”
What does that mean? There are some laws in place that got put in the ‘80s that are still on the books. You can invest $100,000 in an oil and gas well project, you could potentially write up to 85%. That was the maximum the law allows, which means you get to up to 85% deduction on the amount you invested. That’s the maximum it could be. There is something called IDC, Intangible Drilling Cost. There’s something called Tangible Drilling Cost. Then the first 15% of income every year into an oil and gas well project is tax-free. With the new tax overhaul, the current administration made it a little bit sweeter. Whatever amount you put in, whatever amount you contribute you could potentially write off that entire amount as a deduction. Every project is different.
Show me something where you can make an investment and get a deduction at the same time. This is patient money and there are absolutely risks involved. Number one are we going to hit oil? Number two what’s the price of oil per barrel? Number three how many barrels are being pumped per day? Your monthly check is going to be different every month because of those factors right there. If you’re looking for a tax deduction, you’re looking for income, you’re looking for something other than what you’re going to hear from your Wall Street people. Wall Street likes everything the run through Wall Street but on the tax codes, talking about the Intangible Drilling Cost you can go to the IRS Section 263(c)59(e). The depletion allowance is Tax Code 611, 613, 613(c)6 and then the passive activity loss rules, 469(c)(3)(a). All I’m doing is reading and following the current IRS Tax Code. This is nothing magical. This is nothing new. It’s been around for 30 years. I’m blown away when I meet with people and they have never heard of this before. I’m even more amazed whenever these people do decide to make a contribution. They want to run it by their CPA and their CPAs never heard about it before. The CPAs knew about it but didn’t know the full details and again I’m no CPA. I don’t give tax advice. All you got to do is look up Google, Yahoo, Bing, and all these different search engines. Look at IRS tax code and get educated on what is out there.It’s a great time to look at oil and gas as a strategy, especially if you're looking for tax reduction. Click To Tweet
Three Strategies To Take Advantage Of The Tax Code
This is nothing new under the sun. It’s taking advantage of the current tax code. In the three strategies that I deal with, two of them are tax-related. The one that’s not, it gives phenomenal monthly consistent income. If you’re looking for something different, if you’re looking for a way to generate monthly income and also receive a tax deduction as well, I encourage you to look at this. The US government offers attractive tax incentives to encourage investment in domestic oil and gas projects. Intangible drilling costs, which include items such as labor and water typically account for 60% to 80% of the cost of completing a well. It can be 100% tax deductible during the first year. Depletion allowance is a deduction from taxable income that reflects the declining production of reserves over time. Independent producers and royalty owners are permitted to take a 15% reduction to the taxable gross income of a productive well take to account for the depletion of reserves. This results in 85% of the income from oil and gas investors being taxable but you can accelerate some of those more cost, therefore making it potentially a 100% deduction in the first year.
American Independence Of Foreign Oil
It’s an amazing deal that very few people know about. If it sounds like something you’re interested in, get more educated on it, read and immerse yourself in this literature. Read what the IRS is saying. Ronald Reagan was encouraging American independence of foreign oil and we have reached that level. There are some myths about oil and gas as well. The technology of oil and gas has improved so much in the past ten years much less twenty years. It improved so much that they can go down, look, and target. When they used to test for oil, they put the drill bit in the ground it would come up in tests like every four feet or every ten feet. The technology every four down, they knocked down every foot. Oil is there, and we are going in. We’re drilling some new holes. We’re working over some old wells as well. The government is encouraging us to do that with these major tax deductions.
Here’s an article from Bloomberg, The US Just Became a Net Oil Exporter for the First Time in 75 years. America turned into a net oil exporter breaking almost 75 years of continued dependence on foreign oil and marking a pivotal, even if likely brief moment toward what US President Donald Trump has branded as energy independence. The shift to net exports is the dramatic result of an unprecedented boom in American oil production with thousands of wells pumping from the Permian region of Texas and New Mexico to the Bakken in North Dakota to the Marcellus in Pennsylvania.
Most of our wells are in the Permian Basin. We do have some in East Texas, Cherokee County not far from Shreveport, while the country has been heading in that direction for years this dramatic shift came as data showed a sharp drop in imports and a jump in exports to a record high. Given the volatility in data, the US will likely remain a small net import most of the time. “We are becoming the dominant energy power in the world,” said Michael Lynch, President of Strategic Energy and Economic Research but because the change is gradual over time, I don’t think it’s going to cause a huge revolution. You do have to think that OPEC is going to have to take that into account when they think about cutting. The shale revolution has transformed oil wildcatters into billionaires and the US into the world’s largest petroleum producer, surpassing Russia and Saudi Arabia.
The power of OPEC has been diminished undercutting one of the major geopolitical forces of the last half-century. The shift to net exports caps a tumultuous week for energy markets and politics. OPEC and its allies are meeting in Vienna trying to make a tough choice whether to cut output and support prices risking the loss of more market share to the US. It started with Qatar leaving OPEC, to the mysterious US-Saudi bilateral meeting in Vienna followed by canceled OPEC press conference and the latest news that the US turned into a net petroleum exporter, said Helima Croft, the Commodities Strategist at RBC Capital Markets LLC. The US sold overseas a net 211,000 barrels a day of crude and refined products such as gasoline and diesel compared to net imports of about three million barrels a day on average so far in 2018. An annual peak of more than twelve million barrels a day in 2005, according to the US Energy Information Administration. The EIA said, “US has been a net oil importer in weekly data going back to 1991 and monthly data starting in 1973.” Oil historians that have compiled even older annual data using statistics from the American Petroleum Institute said, “The country has been a net oil importer since the mid-1940s when Harry Truman was in the White House.” If that doesn’t excite you, I don’t know what will.
On paper, the shift to net oil exports means that the US is now energy independent achieving a rhetorical aspiration for generations of American politicians from Jimmy Carter to George Bush, yet it’s a paper type achievement. In reality, the US remains exposed to global energy prices still affected by the old geopolitics of the Middle East. US crude exports are poised to rise even further with new pipelines from the Permian in the works and at least nine terminals planned that will be capable of loading supertankers. The only facility currently able to load the largest ships Louisiana offshore all port is on pace to load more oil in December than it has in any other month.You can find everything you want to know on the internet as far as the tax code. Click To Tweet
The massive Permian may be even bigger than previously thought. The Delaware Basin, the least drilled part of the field holds more than twice the amount of crude as its sister the Midland Basin. While the net balance shows the US is selling more petroleum than buying, American refiners continue to buy millions of barrels each day of overseas crude and fuel. The US imports more than seven million barrels a day of crude from all over the globe to help feed its refineries, which consume more than seventeen million barrels each day. In turn, the US has become the world’s top fuel supplier. “The US is now a major player in the export market,” said Brian Kessens who helps manage $16 billion at Tortoise in Leawood, Kansas. “We continue to retool our export infrastructure along the Gulf Coast to expand capacity. You continue to see strong demand globally for crude oil.”
A Time To Look For Oil And Gas As A Strategy
The point is it’s a great time to look for oil and gas as a strategy, especially if you’re looking for tax reduction. Tell me another investment, where you can put your money in, make a deposit, make a contribution and receive a tax deduction for almost up to what you put in. It’s a straight-line deduction that affects your bottom line. For some folks, it throws them in a lesser tax bracket, maybe even too lesser tax brackets depending on where you are. I highly encourage you to talk to your CPA about this but you can find everything you want to know on the internet, as far as the tax code. If you’re looking for a great place, a great strategy I encourage you to get educated on oil and gas.
If you’re investing with your strip mall financial advisor or one of the big bank guys, they don’t have access to this. You have to go directly to the company. I’m a salaried employee for this oil and gas company that’s located right outside of Dallas, Texas. We control cost because we’re a small company with great opportunities. Show me another investment where the first 15% of the income every year is tax-free. The first 15% of income every year into the well, which means into perpetuity or the well producing is tax-free. As you can see these laws are made to encourage American independence of foreign oil and we’ve reached that. These laws have made it possible to reach where we are now or put into place years ago. We’ve done that.
I got carried away reading an article and reading some of the tax code. As you get in a conversation with friends and everything. I’m 42 years old and knowing what I know and what I enjoy doing, I would go back, I would be a tax lawyer. As a young seventeen-year-old starting college in Ruston, Louisiana at the Louisiana Tech University. It’s a great place up there in Lincoln Parish. I would be a tax attorney. I would probably still go there and get my undergrad in business and come back to go to law school somewhere. Go back for another year and get my LM in taxation. One of my best friends from high school and college, he’s a tax lawyer here in Baton Rouge. His name is David Brian Cohn. We were at each other’s weddings. He’s one of my best friends and I send people he does living wills, state planning, trusts, and all that stuff. He’s a tax lawyer and he is what I call sharp as a tack.
Sometimes you go to college you don’t know what you want to do. I want to, I could go back to law school but I’m too knee deep in kids and I don’t want to do that. I don’t want to take the time away to go do that but I’m infatuated with the tax code. When I’m up at 3:00 in the morning drinking coffee. When I can’t, I go to bed fairly early. Like one night, I was on bed at 8:45. I was up about 3:15 making coffee and getting things done but I read the tax code. I read certain parts of the tax code. There are certain parts that affect us. When you look at the IRS Section 263(c)59(e), IRS Section 611 and then 613 and then 613(c)6, IRS Section 469(c)(3)(a). All that is available to any of us.
You can go Google it. Look it up and it helps us with paying the government less money. Show me a person who is not interested in paying the government less money. It is a way to trim down your bottom line. Each deal is different, each well it’s different. Each project has more than one well but each project is different. The potential is there. The opportunity’s there is to write up to 100% of your first year’s contribution, your first year’s investment. If you own the project for ten years, five years we like to drill the wells be in the projects three to five years and then sell the package. For every year that you’re in it and you’re getting monthly income from the oil that we’re striking from the ground, the first 15% is tax-free. This is all current IRS tax code stuff that we’re reading. I like reading about this stuff and I have a lot of my own money in the wells.Show me a person that is not interested in paying the government less money. Click To Tweet
Myths About Oil And Gas
There are a couple of myths about oil and gas. Number one, US oil supplies are all dried up. While some wells have run dry, there’s still an abundance of un-extracted oil. In November 2016, the USGS reported the largest estimate of continuous oil they have ever accessed in the US. The oil reserve was found in a portion of Texas’s Permian Basin and contains an estimated twenty billion barrels of oil reserves. By drilling in proximity to previously producing wells, this company seeks to increase the probability of finding extractable oil. Moreover, by utilizing a new technology we create the potential to extract oil from wells that were previously thought to be non-commercially viable. We do drill new wells as well.
Myth number two, profits are only realized if oil prices are high. I can tell you from personal, back in 2014, when all prices were $28 a barrel, I was still getting monthly checks. Obviously, they were lower because the price of oil per barrel was low. There was a 90-day lag period. Like my check for December, a revenue day for our company every month is the 25th. The December payment will be for September oil that we pumped out of the ground and September prices. Whatever the prices were in September, they were still good. Obviously, as the prices decline that affects your monthly income roughly 90 days down the road. In the old business market prices have always fluctuated. If structured appropriately, oil companies can provide attractive risk-adjusted returns, while oil prices are low. We focus on controlling, drilling and production costs resulting in previous projects. Maintaining profitability, even if oil prices fall at $20 a barrel. We’re still making money.
We’re small. We are able to control costs and we’re able to control things. It’s the way it is. I encourage you to look up tax benefits. The tax benefits are simply amazing. The US government offers attractive tax incentives to encourage investment in domestic oil and gas projects. Intangible drilling costs, which include items such as labor and water typically account for 60% to 80% of the cost of completing a well. It can be 100% tax deductible during the first year amazing. We do not drill oil wells for the tax deductions. They just come along for the ride. They’re lagniappe. Going back to IRS Code 469(c)(3)(a), the term “passive activity” shall not include any working interest in any oil or gas property, which the taxpayer holds directly or through an entity, which does not limit the liability of the taxpayer with respect to such interest. As for 469(c)3(b), income in subsequent years if any taxpayer has any loss for any taxable year from a working interest in any oil gas property, which is treated as a loss, which is not from a passive activity, then any net income from such property or property.
It’s a way to make an investment into a project and to get a tax deduction at the same time, which for a lot of people that’s important. For some people is not a big deal. For high-income earners and people who may cut some trees on some land, may sign an oil lease maybe up there in East or West Louisiana or received maybe more income than what they’re used to, they’re looking for tax reduction, this is a great place to look. They have to invest cash because they do accept IRA dollars for their land. If you become a lender, where your money goes to help lease the land there are no tax deductions for that. It’s a good way to return and it’s consistent income but there is no tax deduction. Getting into that, if you’re looking for something to earn consistent income that pays monthly, you have a choice. You could pay monthly. You become a lender through a secured business loan and you have to make a choice.
You have three choices. As for the terms, you’re either going to put your money for one year, you’re going to lock it up for one year, two years or three. That’s why I love this strategy because it does not handcuff you for seven, ten, fourteen years as some products do. This is locking your money up for one, two or three years. There’s risk involved. This company does a great job of mitigating those risks. The terms are one, two and three years. The one-year term is simple interest at 8% and the compounding interest at 8.3%. If you did a simple interest and you put in $100,000 you’re going to get $8,000 back over the course of a year. Divide that by twelve that’s going to be roughly your monthly income over the course of those twelve months your money was invested. If you choose the compounding and you want the 8.3% like you put your money up, you get nothing until the end of the term. The two-year simple interest is 8.5%. The two-year compounding yield is 9.23%. The three-year simple interest is 9%. For $100,000, you get $9,000 back a year for three years paid monthly.
Do the math on that. It’s a great place to get income doing that. The three-year compound yield is 10.28%. You put your money up for three years. Let’s say we’re talking $150,000 for three years and at the end of the three years you’re going to get your $150,000 and basis back plus another $46,296. I talked to somebody they were like, “How was that?” They took it back to their financial planner. He said, “There’s nothing paying 9%, 10% right now.” I was like, “There are lots of things paying 9% and 10% a lot. There are things paying more than that but they’re probably not affiliated with Wall Street because it’s so freaking corrupt.” You see Wall Street’s in bed with the politicians. They’re in bed with the Feds all that stuff, they’re in bed under the covers together. I choose not to participate in that foolishness.
Aligning With Very Smart People
I’ve been very fortunate to find some very smart people that I have aligned myself with. They’re a little bit older and wiser than me who have shown me some things that they put their money in. I’ve asked the question, “Mike what did you do when you were 40 that you’re glad you didn’t?” Mike is in his mid-60s now. Mike’s a very successful millionaire. That’s one of my mentors that I talk to often. Mike has shown me some things he wished he would have known about when he was 40 years old. Mike has shown me some things that he did when he was 50 that he regretted with money. I don’t make those same mistakes, oil, and gas as one of them because of the phenomenal tax deductions and the monthly income.
The way this company does is if you’re looking for consistent monthly income they have that with the way you can become a lender to the company with your money. They basically take your money and go types some leases. The big companies do this. They do it in a bigger fashion. Think about ConocoPhillips, Marathon, and EOG, they’ve been leasing a lot of lands, numerous acres in East and West Louisiana Parishes, in Northern East Baton Rouge Parishes, St. Helena Parish, Iberville Parish, in Wisconsin and mid-counties in Mississippi. There’s a major formation up there called the Austin Chalk that these companies are targeting. How did those companies get the cash to go pay the landowners for the leases? They are publicly traded companies. They have capital. If you want to, you could go to E-Trade and buy shares of ConocoPhillips or EOG. You could do that. The company that I worked for, we’re not a publicly traded company. We’re private.
We count on private investors, lenders to lend us money to go lock up their leases. There’s a separate raise for the oil and gas drilling projects. The land leases that pay the 8% return a year, 8.5% or 9% a year that is not tied to the price of oil per barrel. It is guaranteed by the company. There is no guarantee by the government. Hollis, what is the risk in this? What if the company files bankruptcy, we’re in trouble but each loan is secured by Pari-passu security interest in project loan documents, perfected via a UCC financing statement in favor of each lender? Perfected liens are created when the lender files a UCC financing statement with the appropriate authority commonly the Office of the Secretary of State. This statement specifies the collateral used to secure the loan and gives the lender precedence in the collection process if the borrower defaults. Unperfected liens leave lenders open to possible claims against the collateral by other creditors. The project alone will be secured by liens against the real and personal property of the sponsor. There have been people doing this for over five years with this company. I’ve had my money with them for numerous years. The loan side of this on the land, the lease when you’re loaning your money for the leases in lands, there are no tax incentives. It is consistent monthly income. We can figure out to the penny how much you’re going to get per month.
If you put up $100,000 in the three-year simple interest, that’s $27,000 you’re going to get back over the course of 36 months. Do the math on that. There are ways you can do this and then fund. One of the other strategies I like is an overfunded life insurance policy. People freak out when they hear about it but it’s tax-free income down the road. There are ways you can put your money in this. Get the monthly interest payments and then fund something else. You’re not going to hear about all of the stuff from Wall Street. Those guys want the money to roll through Wall Street and the broker-dealers. That’s what they wanted to go through. This is you’re going straight directly with an oil and gas company.
Major tax incentives, major tax deductions when you direct directly invest with an oil and gas well project cash, again a major risk. You could lose all your money upfront. We’ve never done that before but you could. The technology is amazing. This company wants investors to go see them. Go take a tour of their office. The technology is amazing, look at the seismographs and you can see the oil everything they’re targeting, and they stick that drill bit in the ground. They extract it and that’s pretty cool the way it all happens. Be warned that you will need to file an extension for your taxes because you and I have the K-1 form in time in April. That draws out, but it’s okay, I’ve learned that. I file an extension every year because the company is trying to get every penny they can for the deduction for you to write off to pay Uncle Sam less money. We all agree the government sucks at managing money. They suck at spending money. They’re freaking terrible at spending money. I would love to punch every single Congressperson in the face that deals with taxpayer’s money. It’s not their own.
Paul Ryan, makes me want to vomit. He talked about the Speaker of the House being a fiscal hawk. He’s the more fiscal hawk. I don’t know what to compare him to. He’s a conservative guy and I’m a conservative guy but he’s a liar. He is no fiscal hawk. The fact that he claims to be, I wish he wouldn’t claim to be a fiscal hawk when he’s not. He’s going to sit there and tell us that he thinks the full retirement age should be at 70 when he’s getting to retire with a full pension of $85,000 a year. That deserves a chokeslam. The way our system is set up, these elite pompous politicians take our money and tell us, make the rules for us, tell us how to live by and tell us how we should live. They exempt themselves from the very laws that they pass for us. How did we allow that to happen? As American citizens, we allowed it to happen.
I love my country. I’m very patriotic. I’m so thankful and grateful that we live in a country where we have a volunteer military. I’m so thankful for all our men and women that are serving this country. It makes me sad that they’re not going to be with their families. It’s the ultimate sacrifice. I respect all those guys, men, and ladies for sure but they do it. The government overall does a terrible job of spending money even down to the state of Louisiana, even some local municipalities.
The answer to problems is not raising taxes. Every stinking time there is a problem, they want to raise more money. You don’t do that in your house. I’ve lost a job before making good money. I have to go work somewhere else. I took a substantial pay cut. We had to make adjustments in my household. It bothers me the government doesn’t do that. They want to tax us more and I’m sick and tired of it. Any time I get the chance to show somebody, how to pay less in taxes, I get happy. It fires me up. I love talking about it. Paying the government less taxes, yes it’s legal. We’re following the current tax code. One of the main parts is US 469(c)(3)(a). Look it up, do your research on it and see if that interest you. IRS Section 611, 613 and then 613(c)6. Also, IRS Section 263(c)59(e). All that stuff is for you. I’m saying this for you to go look this up on your own because I meet people and they’re like, “Is this real? Can I really invest $100,000 and get a deduction for $100,000?” It’s possible. Each project is different. It doesn’t happen every single time but it does happen and it’s possible the opportunities are there.
Call me at 202-SAGE. That’s 202-7243. The website is SageMoneyRadio.com. You can send me an email from there. Just talking about the tax benefits of oil and gas, put money in, getting a phenomenal tax deduction in the same year in the first 15% of income every year is tax-free is solid. There are risks involved in everything but this company does a great job there. They are a Texas-based corporation. They are involved in primary and secondary production, acquisition, development and exploration of oil and gas projects in Texas, Louisiana, and Oklahoma. Most of the wells are in the Permian Basin though. I hope you enjoyed the show.