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5 Landman Tax Deductions

By Jamie Ward, CPA

Why do landmen so often pay more than they have to when it comes to their taxes? Whenever we work with landmen, this is one of the first questions we address. One of our main jobs at Ascension CPA is to ensure that all of our clients are compliant with state and federal taxes. That includes figuring out how our clients may be overpaying.

Our experience is that oil and gas landworkers are often overpaying!

If you are an oil or gas worker, especially if you are an independent contractor, we can find ways to help you reduce your tax burden.

First, minimize the taxes you need to pay.

Independent contractors are the backbone of Oklahoma’s oil and gas industry. 1 in 10 American workers is an independent contractor, and that includes many oil and gas landworkers. This kind of work allows flexibility, the potential for increased income, the freedom to make decisions about your work, and more.

However, independent contractors experience one major drawback: they are considered by the IRS to be self-employed. After all, if the person who contracts with you is not your employer, that means you are your own boss.

Self-employment taxes can be pretty brutal. For a traditional employee of a company or corporation, the employee pays half the Medicare and social security tax, while the employer pays the other half. For those who are self-employed, they have to pay the total 15.3%, in addition to their regular income taxes.

One way to reduce this tax burden is to stop being an independent contractor, and instead become an LLC with an S-Corporation designation.

According to our own blog post explaining the benefits of being an S-Corp:

“If you are taxed as an S-Corporation, then you are no longer self-employed. You are now an employee of the business of your LLC. The LLC reports the salary as a business expense. Then, you as the owner will report the salary and any remaining business profit on your own personal tax return. This means that the S-Corporation’s owner (you) will only pay taxes on the owner’s salary. Remaining profits that go above the salary are not subject to employment taxes.”

Next, maximize your deductions!

When it comes to taxes, there are a few key terms you need to be aware of.

Tax credits: a specific amount of money that can be offset against taxes you owe. In other words, if you owe $1000, but you have a tax credit for $100, then what you owe has now been reduced to $900. Some tax credits are refundable, which means you’ll get that amount back regardless of whether you owe any taxes at the end of the year. Some are non-refundable, which means you will only get the credit if you owe taxes.

Tax deductions: an amount of money you can deduct from your gross income, thus lowering the amount of income you can be taxed on.

Maximizing deductions is an important part of managing your tax responsibility. The IRS explains some of the most common tax deductions on their website.

The Tax Cuts and Jobs Act, which went into effect after December 31, 2017, changed a lot of the deductions that were previously available. You should be aware that things you had previous expected to deduct may not be available as deductions anymore. This includes: moving costs for a job, miscellaneous itemized deductions such as uniforms, union dues, and business-related meals, entertainment, and travel.

In order to find the deductions that will lower your tax responsibility, you will need to determine which is greater: the recently increased standard deduction or itemized deductions. This is unique to your specific situation. Even if you have managed your taxes in the past, the new tax law changes a lot and makes many previous guidelines obsolete. We highly recommend getting professional help with your taxes, especially in these first few years after the tax bill!

5 Tax Deductions You Can Take as an Independent Contractor

If you are currently an independent contractor, here are some of the tax deductions we encourage you to take right now:

  1. Self-Employment Tax Deduction:

    if you haven’t become an S-Corp yet, you can still deduct 50% as part of the self-employment tax deduction.
  2. Retirement Plans:

    Having a 401(k) is not only a responsible retirement choice for an independent contractor, it is also good for your taxes. You can deduct contributions to your 401(k) plan.
  3. Office Supplies and Business Expenses:

    These purchases can only be used for your business, not for personal use. However, if they do qualify as business use only, you can deduct the expenses.
  4. Educational Expenses:

    If you participate in educational opportunities, professional conferences and workshops, or seminars, or if you pay subscription fees or dues to professional organizations, you may deduct those expenses.
  5. Communication Expenses:

    Internet, data, and some phone costs can be deducted. You can only deduct the amount that is proportional to the use of these things in the performance of your job. In other words, if you use 50% of your data on work-related tasks, you can deduct 50% of your data bill.

Want to make sure you are not missing anything?

As Ascension CPA, we have worked with Oklahoma’s oil and gas workers for years, and our experience with the industry makes us the best choice for helping you ensure tax compliance without overpaying.

We would love to talk with you about how we can help you continue your independent contracting, form an LLC, or file as an S-Corp, all to start reducing your tax burden today. Send us a message today, or give us a call at 405-759-2796 to get in touch.

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