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Investments That Can Lower Tax Liability

Career

As we dive through tax season and start looking at numbers, many small business owners and investors alike are thinking of that sweet word that is magic to their ears—deduction!


Go-To Tax Deductible Investments

IRA’s, 401ks and SEPs are well-known tax shelters that are common in many investors and small business owners portfolios. Nearly all advisors will direct their clients to maximize these deductions to the fullest extent possible.

However, some tax advantages decrease or phase out completely with increases in income. And long-term capital gains on stock investments are taxed at 0, 15, 25 or 28 percent based on which tax bracket an investor falls into — and many investors, especially high net worth investors typically fall into the highest tax bracket, granting Uncle Sam a 28-percent chunk of those stock investment gains.

The combination of income restrictions and high potential tax liability has left many investors thinking outside the box when it comes their tax savings strategy.

Oil & Gas Deductions: Big Benefits Without Big Name Recognition

For investors and small business owners, investing in oil and gas can be very beneficial from a tax savings perspective. But CPAs who don't specialize in oil and gas investing aren't likely to bring it up — which puts the onus on the investor to do their research beforehand and present the option to their tax or financial advisor.

Here's some ammo to bring to the table for investors planning to have that pre-tax season conversation:

One considerable benefit is that an investor can deduct intangible drilling costs (IDCs) for drilling or preparing a well for the production of oil and gas. Tangible drilling costs (TDCs) are depreciated according to standard IRS depreciation rules over seven years.

EnergyFunders CEO Philip Racusin poses this example to illustrate the tax benefits of oil and gas investing:

"Say an investor puts $100,000 into oil and gas venture. In the first year, that investor can deduct $80,000 for the IDCs and $2,858 for the TDCs. This comes to a total tax deduction of $82,858 in just the first year for IDCs and TDCs alone. But oil and gas investors also get a 15 percent tax-free depletion allowance of the annual production revenue. So, for example, if that project produced $86,158 in the first 12 months of production, the investor would enjoy an additional $12,924 in tax reduction benefits."

The little-known tax advantages available to investors in this industry make oil and gas a sometimes surprising avenue to consider for investors unfamiliar with the industry. But, as demonstrated above, it's one with high potential to fire up a portfolio's means of mitigating tax liability.

Add to the tax savings the fact that OPEC production cuts stand to create a boom in private equity investing directly into oil wells and the benefits of this investment are overwhelming.

Real Estate Deductions: Tax Advantages More of Us Have Heard Of

Commercial real estate investing is a little more common on the tax-benefit radar. Though, because it's not always a CPA's bread-and-butter, it's often left out of the conversation when it comes time to talk tax planning. Here's what investors should know when the time comes to bring it up:

A poll by Landlord Station reports that over 28 million Americans are investing in real estate. Real estate investments can often have regular cash distributions and feature the stability of a physical asset behind the investment. However, the real power can be in the deductions.

There are a number of ways real estate is tax deductible, interest expense on the mortgage, operating expenses (like costs for placing ads and repairs to property), property taxes, insurance and depreciation.

In many real estate investments, investors can recover the cost of property depreciation over 27.5 years. However, many property investment firms and funds use accelerate depreciation methods—which can add a powerful punch.

John Latham, CIO of The PPA Group, a real estate investment company, weighs in on strategies for accelerating depreciation for maximum tax benefits:

"Multifamily real estate is one of the most attractive investments for a tax strategy called cost segregation. By conducting engineering audits of these types of properties, an investor could potentially accelerate depreciation by segmenting certain parts of the real estate as personal assets, and possibly move from a 27.5 year depreciation schedule to a 5 to 7 year schedule. In some cases, the audit may also show that certain parts of the asset can recapture depreciation from previous years in the current year — allowing for an even larger write-off."

As many investment firms additionally offer investors a way to diversify amongst a number of assets, it can have some pretty strong investment advantages.

Don't Let All This Info Feel Too Taxing

The bottom line is tax efficient investments allow investors to keep more of their return — otherwise known as more of their money. That makes it worth it to do a little digging when it comes to your options, but you don't need to know everything.

Your CFA and CPA are the experts on what strategy makes the most sense for your unique portfolio. They can provide you with more detail on your options in the oil and gas and real estate spheres — as well as additional industries you may not have yet considered.

And all you need to know is if it's worth it to you to pose the question.

7min read
Culture

The Middle East And North Africa Are Brimming With Untapped Female Potential

Women of the Middle East have made significant strides in the past decade in a number of sectors, but huge gaps remain within the labor market, especially in leadership roles.


A huge number of institutions have researched and quantified trends of and obstacles to the full utilization of females in the marketplace. Gabriela Ramos, is the Chief-of-Staff to The Organization for Economic Co-operation and Development (OECD), an alliance of thirty-six governments seeking to improve economic growth and world trade. The OECD reports that increasing participation in the women's labor force could easily result in a $12 trillion jump in the global GDP by the year 2025.

To realize the possibilities, attention needs to be directed toward the most significantly underutilized resource: the women of MENA—the Middle East and North African countries. Educating the men of MENA on the importance of women working and holding leadership roles will improve the economies of those nations and lead to both national and global rewards, such as dissolving cultural stereotypes.

The OECD reports that increasing participation in the women's labor force could easily result in a $12 trillion jump in the global GDP by the year 2025.

In order to put this issue in perspective, the MENA region has the second highest unemployment rate in the world. According to the World Bank, more women than men go to universities, but for many in this region the journey ends with a degree. After graduating, women tend to stay at home due to social and cultural pressures. In 2017, the OECD estimated that unemployment among women is costing some $575 billion annually.

Forbes and Arabian Business have each published lists of the 100 most powerful Arab businesswomen, yet most female entrepreneurs in the Middle East run family businesses. When it comes to managerial positions, the MENA region ranks last with only 13 percent women among the total number of CEOs according to the Swiss-based International Labor Organization (ILO.org publication "Women Business Management – Gaining Momentum in the Middle East and Africa.")

The lopsided tendency that keeps women in family business—remaining tethered to the home even if they are prepared and capable of moving "into the world"—is noted in a report prepared by OECD. The survey provides factual support for the intuitive concern of cultural and political imbalance impeding the progression of women into the workplace who are otherwise fully capable. The nations of Algeria, Tunisia, Morocco, Libya, Jordan and Egypt all prohibit gender discrimination and legislate equal pay for men and women, but the progressive-sounding checklist of their rights fails to impact on "hiring, wages or women's labor force participation." In fact, the report continues, "Women in the six countries receive inferior wages for equal work… and in the private sector women rarely hold management positions or sit on the boards of companies."

This is more than a feminist mantra; MENA's males must learn that they, too, will benefit from accelerating the entry of women into the workforce on all levels. Some projections of value lost because women are unable to work; or conversely the amount of potential revenue are significant.

Elissa Freiha, founder of Womena, the leading empowerment platform in the Middle East, emphasizes the financial benefit of having women in high positions when communicating with men's groups. From a business perspective it has been proven through the market Index provider MSCI.com that companies with more women on their boards deliver 36% better equity than those lacking board diversity.

She challenges companies with the knowledge that, "From a business level, you can have a potential of 63% by incorporating the female perspective on the executive team and the boards of companies."

Freiha agrees that educating MENA's men will turn the tide. "It is difficult to argue culturally that a woman can disconnect herself from the household and community." Her own father, a United Arab Emirates native of Lebanese descent, preferred she get a job in the government, but after one month she quit and went on to create Womena. The fact that this win-lose situation was supported by an open-minded father, further propelled Freiha to start her own business.

"From a business level, you can have a potential of 63% by incorporating the female perspective on the executive team and the boards of companies." - Elissa Frei

While not all men share the open-mindedness of Freiha's dad, a striking number of MENA's women have convincingly demonstrated that the talent pool is skilled, capable and all-around impressive. One such woman is the prominent Sheikha Lubna bint Khalid bin Sultan Al-Qasimi, who is currently serving as a cabinet minister in the United Arab Emirates and previously headed a successful IT strategy company.

Al-Qasimi exemplifies the potential for MENA women in leadership, but how can one example become a cultural norm? Marcello Bonatto, who runs Re: Coded, a program that teaches young people in Turkey, Iraq and Yemen to become technology leaders, believes that multigenerational education is the key. He believes in the importance of educating the parent along with their offspring, "particularly when it comes to women." Bonatto notes the number of conflict-affected youth who have succeeded through his program—a boot camp training in technology.

The United Nations Women alongside Promundo—a Brazil-based NGO that promotes gender-equality and non-violence—sponsored a study titled, "International Men and Gender Equality Survey of the Middle East and North Africa in 2017."

This study surveyed ten thousand men and women between the ages of 18 and 59 across both rural and urban areas in Egypt, Lebanon, Morocco and the Palestinian Authority. It reports that, "Men expected to control their wives' personal freedoms from what they wear to when the couple has sex." Additionally, a mere one-tenth to one-third of men reported having recently carried out a more conventionally "female task" in their home.

Although the MENA region is steeped in historical tribal culture, the current conflict of gender roles is at a crucial turning point. Masculine power structures still play a huge role in these countries, and despite this obstacle, women are on the rise. But without the support of their nations' men this will continue to be an uphill battle. And if change won't come from the culture, maybe it can come from money. By educating MENA's men about these issues, the estimated $27 trillion that women could bring to their economies might not be a dream. Women have been empowering themselves for years, but it's time for MENA's men to empower its women.