Working in the oil and gas sector is tough enough...
Tax season can make your job feel a little bit harder. if you are a consultant, manager, or inspector in the old and gas industry, you are most likely a 1099 contractor. A 1099 contractor is considered to be a small business by the IRS and requires them to pay Social Security (12.9%) and Medicare (2.4%) or self-employment taxes. So that is 15.3% on top of your income tax.
When you are an employee, half of the tax is withheld from your paycheck and your employer is responsible for paying the other half. When you are your own company, non-employee contractor/business, you do not have taxes withheld and are responsible for handling all of it.
However, as a business owner, you are eligible to claim tax deductions on a Schedule-C Form and reduce how much you'll owe to the government at the end of the tax year.
There are a lot of business expenses you can claim from your tax bill so you don't overpay Uncle Sam. Let's dive into the top 15 deductible expenses.
Note: If you want to track ALL your oil and gas tax deductions to reduce your taxable income, then try Bonsai Tax. Our business expense tracker will scan your bank/credit card receipts to discover potential tax write-offs. In fact, on average users save $5,600 with our tool Try a 7-day free trial on the house today.
Tax Write-Offs For Workers in the Oil And Gas Industry
You don't want to miss tax deductions at the end of the year. Here's a list of the top 15 tax deductions you can claim to lower your taxable income.
Cell phone and phones/accessories
If you use your cell phone for 'business use', you can deduct a portion of the costs from your tax bill. All you need to do is calculate how much time you use your phone for business versus personal use and you can deduct the percentage for work from your taxes. For example, if you use your phone 15% of the time for business, the IRS allows you to deduct 15% of your phone bill.
Home office expenses
If you have a designated area in your home where you work for your business, you can write it off. The IRS has specific guidelines to determine if you qualify for this deduction. You must show that you use your home as your principal place of business.
You may be eligible for this deduction if you conduct business at a location other than your house yet utilize your home for work on a regular basis.
Practically all businesses use the internet for their business. You can deduct a portion or even all of the wifi expense when it comes time for taxes. The deductible expense will be entered as part of your home office expenses. Remember, your Internet expenses only qualify as a deduction if you use them specifically for work purposes.
The Costs Of Subcontractors
As a freelancer or 1099 worker, you can write off the fees of hiring other subcontractors from your taxable income. Let's say you contract another oil inspector to double-check they are in line with contract specifications. Then, you'd be able to write off the cost of hiring this non-employee.
Computer and office supplies
There are a number of computer and office expenses you can claim from your tax bill. If you purchase a new computer for work or office supplies such as a calculator, binder, or sticky notes, these expenses can be written off. You can deduct the whole cost of a computer if you use it more than 50% of the time in your business.
You can deduct the amount you spend for rent if you rent out office space. You can also deduct any amounts paid for rented equipment. If you pay a charge to terminate a business lease, it's also deductible.
Business expenses like utilities and rent spent on business premises, such as a retail store or office, count as a write-off. Expenses for services or products such as gasoline, electricity, water, and sewer are included in utility costs. You can only claim based on the percentage of home office space you use to conduct your business. For example, if your home office takes up 10% of your floor plan, you can deduct 10% of each bill.
If you purchase any subscriptions to software that you use for your oil and gas profession, they are deductible expenses. Software like WellView, Petrel E&P Software Platform, geoSCOUT, myQuorum, IHS Kingdom, and even tax software like Bonsai Tax are deductible expenses.
If you have dinner with a client or purchase a meal with an associate where you talk about a job or your business counts as a business meal. In 2021, Biden passed a law to increase the deductibility of business meal expenses from 50% to 100%. This would affect meals purchased from a restaurant during the calendar years 2021 and 2022. Read here for more information on claiming a business meeting meal from your tax bill.
If you need to hire a lawyer for any legal professional services in regards to maintaining compliance with the law, then these expenses are also deductible. The cost to hire a tax professional's services to help you file your taxes can also be written off. For example, if you have any fees for starting a business as a corporation or LLC, the cost can be written off for up to $5,000.
Travel expenses are any necessary and ordinary expenses you incur while traveling away from home for your business, profession, or job. You cannot write off business travel expenses for any costs that are lavish or extravagant like bottle services at a club, or that are for personal purposes. These include expenses such as Uber/Lyft expenses, air/train/bus costs, hotel or AirBNB expenses, meals, rental car, flights, baggage, etc.
Travel expenses are 100% deductible. Meals are generally 50% deductible but in 2021-2022, they will also be 100%.
Depending on how long the assignment or job is, will also determine if your expenses will be deducted. Generally, the IRS declares your "tax home" as your entire city or general location/area where your main place of business or work is. If an assignment is a year or longer, it is considered permanent and in the IRS's eyes, you'll have a different "tax home". This means your travel expenses are not deductible.
Note: Try Bonsai's tracker for travel expenses to record all of your deductions and reduce your tax bill. Our software service will discover and track your deductions by scanning your credit card/ bank statement receipts to discover potential tax write-offs. You'll simply download the expense sheet during tax time. Generally, users save $5,600 off their tax bills when they file. Try a 7-day free trial today to reap the benefit.
Subscriptions To Oil And Gas-Related Magazines
If you subscribe to any professional magazines related to oil and gas, you can deduct the costs from your taxes. These would also be newspapers, journals, newsletters, and similar publications. Again, they have to be related to the industry. For example, a tax accountant could deduct the cost of a subscription to the CPA Journal, but not to a Science journal or a general interest magazine. Meanwhile, a freelance writer could deduct subscriptions to copywriting newspapers and magazines to which he or she has.
As a self-employed worker, you are eligible to deduct vehicle costs. There are two IRS-approved methods for deducting vehicle expenses. We'll quickly review the actual method versus Standard mileage.
To claim vehicle expenses by using the actual method, you must save the receipts of all vehicle related expenses. You can deduct a number of car-related expenses such as:
fuel expenses/ oil and gas
Maintenance and repairs
Improvements and depreciation of your initial automobile
Instruments for auto maintenance
Fees for licenses
Fees for parking during business trips
Fees for registration
Tire replacement costs
Lease payments for car cleaning
Auto club dues and towing charges
Although claiming this method seems like more work, the benefit is, however, that taxpayers typically find that they save more money than claiming mileage.
Standard Tax Mileage
The standard tax millage rate was introduced by the IRS to save business owners the hassle of tracking actual expense receipts. All you have to do for this accounting method is to record the miles you travel/drive for business and multiply it by the IRS's mileage rate for the year. So if you drove 4,000 miles for business and the mileage rate for 2021 is 56 cents per mile, then you can write off $2,240. Remember commutes from home to work or job site does NOT count as business miles.
Any expenses you pay for continued education or learning can be taken off from your self-employment taxes. Any continued education expense related to your field qualify. If you were to take classes to try and get promoted in a different field, the expenses cannot be claimed.
Gas/Oil Work Uniform
Clothing specifically used for your freelance work in oil and gas work can be written off. You need to determine if you can use the clothing for everyday wear or not. For instance, jeans would not count as a deduction because you can use that for everyday use. Protective uniforms, team gear, or work boots to wear only on the job site can be are considered a necessary expense and can be deducted.
Note: We always recommend taxpayers seek accounting advice from a proper professional. If you have any questions/ support about what counts as a deduction or any other tax return filing inquiries must be addressed by a specialist.
As a small business owner, understanding the various IRS-required forms for subcontractors is absolutely essential to remain compliant. This guide will let you know all about creating 1099 forms and what types of forms you may need..