Issue 124 – Tax Bill Impact On Petroleum Industry
Introduction...Republicans were joyful Friday as they finalized their tax plan, bridging differences between the House and Senate bills and moving another step closer to getting legislation to President Trump by Christmas.
Tax Cuts…The Tax Cuts and Jobs Act represents the largest one-time corporate tax rate cut in history. The top corporate rate will drop from the current rate of 35% to 21%. The bill lowers the taxes for most Americans and small business owners.
The final GOP bill gets rid of the corporate alternative minimum tax (AMT) which is a big relief for the business community. The AMT carries a massive unproductive\e accounting cost for all that are impacted.
The justification…The justification for the gigantic corporate tax rate cut is that over the last 30 years, the U.S. went from having the world’s lowest corporate tax rate, to have on of the highest rate.
Since corporate directors primary responsibility is to maximize shareholder value, i.e. reducing taxes, Tax Inversions became the popular way for multi-nationals to reduce US income taxes.
“Pass through” entities…The vast majority of American businesses “pass through” its income to the owners. These entities include S corporations, LLCs, partnerships, and sole proprietors. Under the tax bill, these companies get to deduct 20% of their income tax-free until 2025 when it is scheduled to expire.
The big surprise…The big surprise in the tax bill is the opening of the Arctic Wildlife Refuge (AMWR) to drilling. The Republicans have pushed for years to opening ANWR to drilling but have been stopped by the Democrats.
Renewable energy…The final text of the tax bill made public Friday retains the key tax credits for wind, solar, and electric vehicles. This reversed earlier language that could have slowed adoptions of renewable energy. The lawmakers recognized renewable energy as the source of more than 7% of the nation’s electricity and a fast-growing energy source.
In conclusion... Pass through entities will increase in popularity under the tax bill going forward. This is a brief discussion of the GOP Tax Bill’s impact on the petroleum industry. There are also massive changes that impact the individual taxpayer directly. The author encourages you to contact your CPA as soon as possible to decide what changes in your business are necessary to maximize your income tax savings.
Bill Moist, MS, CPA
He can be reached at firstname.lastname@example.org
References: Nick Cunnigham, “The GOP tax bill is huge for US oil and gas industry,” Business Insider, 7 Dec 2017; Heather Long, “The final GOP tax bill is complete. Here’s what is in it.” Washington Post, 15 Dec 2017; Brad Plumer, “Tax Bill Largely Preserves Incentives for Wind and Solar Power,” The New Yor Times, 165 Dec 2017.