Rise & Shine Summer 2018 | Seite 4

THE“ FOUR PILLARS” STRATEGY

Are You Being Properly Compensated?

As oil & gas companies continue to seek out opportunities in the Marcellus and Utica shale region, some landowners have started to question whether they are being fairly compensated for their oil & gas rights, whether their assets are secure and whether the income they are generating from this relationship is being optimally managed. Oftentimes, these landowners aren’ t fully aware of the opportunities at their disposal. Fortunately, by working with those who have been impacted by Ohio’ s oil & gas boom, we’ ve been able to identify a Four Pillars Strategy to help landowners realize their full earning potential from such oil & gas rights.

PILLAR ONE: INCOME TAX

As you’ d expect, working with a CPA is the best way to navigate the tax code. Your CPA is also a great source for advice when it comes to developing an income tax strategy that reflects more favorably on your bottom line while ensuring complete compliance. There are certain liabilities associated with oil & gas rights, but there can also be opportunities for some great tax savings. For example, are you still working and receiving a W-2 at yearend? If so, you should be maxing out your retirement contributions at work and living off of the lease bonus or royalty proceeds. Is your property also a working farm? If so, do you need new equipment or a new building? Do you have a high-deductible health plan? If so, are you taking advantage of a health savings account? Are the depletion, post-production cost and severance tax deduction being pursued on your tax return? Additionally, there are a multitude of tax complexities when it comes to pipeline agreements and royalty income that a CPA can handle. Make sure you know what your agreement entails before signing.

PILLAR TWO: ASSET PROTECTION

Oil & gas companies are reaching out to you because you’ re the owner of the coveted mineral rights. While ownership deeded in your personal name( s) can be financially beneficial, it can also set you up for risk. As a way to offer our clients protection and additional tax benefits, our second pillar strategy relates to asset protection. Often, we will recommend that clients deed their mineral rights into a limited liability company( LLC) and distribute ownership among family members. Doing so will protect your personal assets from economic and environmental liabilities that may be incurred by the LLC while providing further protection from other personal financial issues such as bankruptcy, divorce, medical costs, etc.

PILLAR THREE: TRANSFER / MANAGEMENT OF WEALTH

Transferring mineral rights to an LLC also streamlines the transfer of wealth to the next generation. For example, you can gift or transfer ownership units of your LLC to a family member. In doing so, the transferred units of the LLC may be eligible for a minority discount, which can help the party doing the gifting preserve more of their lifetime gift tax exemption. You can also use an income tax savings strategy known as income tax spreading. After gifting the units to younger family members, taxable income may end up in a lower tax bracket. Your CPA will work with you, and the other LLC owners, to take steps to preserve your lifetime gift tax exemption while working to also minimize your taxable income.

PILLAR FOUR: REVENUE ROYALTY AUDITING

The final pillar represents your right to be paid what you are due from the oil & gas companies. We conduct royalty audits to ensure there were no mistakes made by the company when determining your share of the royalties. If we come across a mistake, we will work with all parties to make sure that you receive the royalties that are owed to you. Even if we are unable to uncover additional revenue, some clients consider this to be one of our most valuable services simply because we are able to provide them with peace of mind.

Sometimes it’ s hard to trust the unknown … and oil & gas companies bring a lot of unknown information and unfamiliar business strategies along with them when they come to town. We believe that the Four Pillar Strategy will provide you with the protection you need while helping to generate the revenue that’ s rightfully yours. Please feel free to give me a call to learn more.

by: Scott Moyer, CPA Rea & Associates, Inc.

905 Zane Street Zanesville, OH 43701

740.454.3297 scott. moyer @ reacpa. com

4

Rise & Shine • Summer 2018