How I Used Oil & Gas Investments to Save Over $83,000 on My $1M Tax Bill
A Real 2021 Strategy You Can Learn From
In 2021, I was facing a seven-figure income and a massive federal tax bill. Even after all the typical business write-offs and deductions, I still had over $1,000,000 in net taxable income.
But instead of overpaying Uncle Sam, I used a lesser-known but legal tax strategy that saved me over $83,000—and it had nothing to do with real estate or retirement accounts. It involved investing in domestic oil and gas wells using the power of the tax code.
In this blog, I’ll walk you through:
Why I chose oil and gas in 2021- How the tax code made this move extremely effective
- A dollar-for-dollar breakdown of what I saved
- And the real risks most people overlook
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Why I Chose Oil & Gas in 2021
Let me give you the backstory.
In 2021, interest rates were at historic lows. Real estate was overpriced—cap rates were compressed, multifamily deals made no sense, and single-family homes were bidding wars with no cash flow. Stocks were overvalued and tech-heavy. I didn’t want to throw money into a bubble.
But I still had a big problem: a massive tax bill.
I wanted:
- Cash-flowing assets, and
- A strategy that reduced my active taxable income using the IRS tax code—not some influencer fantasy.
That’s when I came across oil and gas—specifically, direct well participation where I could invest as an accredited investor.
The Power of Intangible Drilling Costs (IDCs)
Most people don’t know this, but the IRS allows investors in oil and gas projects to deduct a huge portion of their investment in Year 1—thanks to something called Intangible Drilling Costs (IDCs).
These are all the upfront costs to drill a well—labor, site prep, fuel—anything that isn’t equipment. Because of this provision under Section 263(c) of the tax code, 60–85% of the investment is deductible immediately.
In my case:
- I invested in 3 oil wells, each costing $88,000
- Total investment: $264,000
- IDC deduction (85%): $224,400
What That Meant for My Taxes
Here’s where it gets real.
Without oil & gas:
- Net taxable income: $1,000,000
- Estimated tax at 37%: $370,000
With the deduction:
- Taxable income after IDC: $775,600
- Revised tax bill: $286,972
- Total tax saved: $83,028
That’s $83,000 I legally kept—dollar for dollar. Not deferred. Not delayed. Gone from my tax bill thanks to an asset class most people never look into.
Bonus: Cash Flow and Depletion
This wasn’t just about the tax write-off.
Those wells also started producing monthly cash flow. And the income gets even better over time because of something called the depletion allowance, which gives you even more tax shielding as the well produces.
But I break all that down in the video—it’s worth watching.
Fancy Finance Term of the Day: “Intangible Drilling Costs”
Let’s pause and break this down.
Intangible Drilling Costs are basically everything it takes to drill a well—except the equipment. It’s labor, surveys, fuel, logistics. You can’t resell it, but it’s money spent.
The IRS lets you deduct most of that in Year 1—making it one of the most aggressive legal tax deductions available to accredited investors.
Let’s Slow Down… Risk Matters
Before you get too excited—slow down.
I want you to make money and use the tax code to your advantage. But I also want to protect you from losing money just because you’re chasing tax write-offs.
Here’s the truth:
- Oil wells can fail.
- Operators can mismanage funds.
- You cannot just pull your money out like you can with stocks or real estate.
This is serious capital—and it comes with serious risk.
So before jumping in, talk to a CPA. Read the offering documents. Make sure it’s the right fit for your portfolio.
Watch the Full Breakdown on Video
Want to see the math, charts, and cash flow visuals? I walk you through every step—plus what to ask if you’re considering this type of investment.
Watch the full breakdown on YouTube Listen to the episode on Spotify Join our audience on Meta (Facebook/Instagram)
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