Don Deans is a CPA tax strategist from Charlotte, North Carolina. In this episode of Strategic Investor Radio, host Charley Wright interviews Mr. Deans as he explains four unique opportunities for accredited investors:
1. Oil and gas drilling partnerships;
2. Passive activity;
3. Micro-captive insurance companies; and
4. Conservation easements.
Although low energy prices have made oil-and-gas partnerships less attractive more recently, their tax advantages take some of the sting out of losses in bad times and add to after-tax gains when times are good. Deans explains that between 75-90% of an oil-and-gas partnership investment can be deducted in the first year, so a $100,000 investment could result in a tax benefit of more than $35,000, assuming a $90,000 deduction and a marginal tax rate of 39.6%.
Passive activity refers to investments in limited partnerships. Mr. Deans points out that losses in prior years carry forward, and thus investors with previous losses can effectively earn tax-free passive income.
Micro-captive insurance companies are for businesses owners who can self-insure against certain risks. Setting up a wholly owned insurance subsidiary requires actuaries and a feasibility study, but it can result in a tax deduction of up to $1.2 million, and that money can be invested within the insurance company to earn a return. Ultimately, those gains will be taxed as capital gains, whereas the money used to fund them was deducted from corporate income – this is a tax-arbitrage game.
Finally, conservation easements give landowners a tax benefit equal to the foregone “highest value use” of their land if they choose to keep it undeveloped. For example, the owners of land that could be developed into a coal mine can receive a tax deduction equal to the actuarial value of that development, while leaving it untouched to preserve the environment.
Mr. Deans is a friend of Minnesota Vikings legend Fran Tarkenton, and he recommended Tarkenton’s book on Failure (see link below).