37 DECEMBER 2024 WorldWide Drilling Resource® Drilling Into Money Not Boring by Mark E. Battersby Planning for Losses No one plans to incur a loss. Many smart drilling business owners and operators do, however, “plan” or anticipate potential losses to minimize their impact, reverse them more quickly and, in some cases, reap the benefits of increased cash flow, lower tax bills - today and in the future. Surprisingly, there are losses that can be controlled. If a depreciable business asset or an incomeproducing asset loses its usefulness and is subsequently abandoned, there can be a so-called “abandonment” loss. Naturally, an abandonment loss must be distinguished from anticipated obsolescence. Best of all, this type of loss applies to the abandonment of a business, as well as the abandonment of intangible assets, such as contracts for services. Casualty losses, at least if they are the result of a legitimately declared disaster, can be utilized to recoup taxes paid in the previous tax year. In essence, a casualty loss resulting from a declared disaster may be claimed as a tax deduction in the year preceding the year in which the disaster actually occurred. A Net Operating Loss (NOL) occurs when a business’s deductions exceed its taxable income or adjustable gross income. Unfortunately, NOLs can no longer be carried back to offset the taxable profits in earlier years. They can, however, be carried forward indefinitely - although they are limited to a maximum of 80% of the upcoming year’s income. A number of unfortunate business owners, particularly those whose businesses operate as a pass-through entity, have discovered there can be such a thing as too much of a loss. If a pass-through business generates a tax loss this year (2024) or next (2025), it cannot deduct an “excess business loss.” An excess business loss is the excess of the drilling operation’s total deductions for the tax year over the sum of the aggregate business income and gains for the tax year, and $250,000 ($500,000 for taxpayers filing jointly). Would a refund on taxes paid by the formerly profitable drilling operation in years past help ease the pain of lingering losses this year? What if last year’s business losses could offset next year’s profits and reduce the tax bill for years to come? Whether as a result of economic conditions, competition, or factors outside the control of the drilling operation’s owner or manager, every business is at risk of sustaining losses. Professional assistance may be necessary to reduce their impact. Mark Mark E. Battersby may be contacted via e-mail to michele@ worldwidedrillingresource.com INTRODUCES OUR NEW DESIGN BIG FLOW PDC!! Come see us at Booth #265 10% Discount and Free Freight More Cutters More Flow!
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