The Tax Plan’s Impact on Oil and Gas (So Far)

Americans are finally getting a glimpse of the economic impact from passage of the Tax Cuts and Jobs Act of 2017.

Majority Whip John Cornyn (R-Texas) made a substantial last-minute “manager’s amendment” to the Senate plan, reducing the publicly traded partnerships’ tax cut from 35 percent to 21 percent, which will have a significant impact on the oil and gas industry. This dramatic reduction is intended to benefit industry workers and investors, while making the oil and gas industry more competitive in global markets.

President Trump has historically shared fossil fuel-friendly views, and the recent tax reforms expand the ability of businesses to write off equipment expenses. This continuation of offering tax incentives preserves and fosters investment in the oil and gas sector.

Here’s what we’ve gleaned so far from the tax reform bill:

• The tax code was simplified by getting rid of most deductions. Due to decades of legislature intended to reward individual and corporate investment, the tax code has become a complicated web of loopholes and exemptions, navigated by complex financial maneuvering.

• Corporate and individual tax rates were reduced across the board. This is a flat rate across all income levels. Also, the corporate alternative minimum tax (AMT) was repealed, which will encourage more investment in our country and allow companies to increase workers’ wages and retirement contributions with the savings. We have already seen many companies doing just that, such as Visa Inc., Nationwide Mutual Insurance Company and AutoNation, Inc., by announcing plans to raise the payments they make to match employee contributions in 401(k) accounts. Other companies have said they plan to make a one-time contribution to employees’ retirement plans.

• The $7,500 credit for electric vehicles remains, and the bill did not modify the credit for electricity produced from certain renewable resources or the energy investment tax credit.

The tax plan continues to mandate the use of last-in-first-out (LIFO) accounting rules. This method allows crude stockpiles to be valued at current market prices rather than at original purchase costs. Also preserved in the bill are intangible drilling costs deductions and the taxable income reduction that reflects the depreciation of reserves.

A new Qualified Business Income (QBI) deduction was added for individuals who receive income from pass-through entities (such as S-Corps, Partnerships, LLCs, LLPs, Sole Proprietorships and Rentals), which will provide these smaller businesses and their owners with a tax benefit.
While the details of the legislation are by no means secure, the intended net effect will hopefully translate into financial benefits for hard-working Americans, more jobs and a strong, independent economy.

About the author: Feeling the inefficiency of traditional financial planning firms, Sid Miramontes started Miramontes Capital (www.miramontescapital.com) to provide pinpointed expertise to a single life stage: retirement. “People spend forty years working to save enough to retire. The strategy that got you to retirement is fundamentally different than the strategy required to get you through it. That shift is what most people miss.” Miramontes Capital provides concierge advisory services and financial expertise to individuals making the transition into retirement. Clients receive personalized investment strategy, taking into account each client’s unique values and objectives. Sid has been featured in Forbes Magazine, recognized as a California Financial Leader by Forbes, and named three times to Barron’s Top Financial Advisors.

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