Oil and Gas DPP Investments for Solopreneurs: What They Are, Who They’re For, and How They Cut Taxes
“Oil and gas DPP investing is one of the simplest advanced tax strategies: a huge first year deduction now and a passive income stream later.” - Daniel Sleep, CPA, CTS
Introduction:
If you are a high income solopreneur, you have probably reached a point where the usual tax planning moves are not enough. You may already be maximizing retirement deferrals, using your S corp properly, or stacking classic deductions. The question becomes: what strategies still move the needle when income is high and taxes feel heavy?
One of the most effective advanced tools we use at Oakenshield Tax Advisors is oil and gas DPP investing. It is a way to reduce taxes today while building a long term passive income stream. It is also one of the most misunderstood strategies in the solopreneur space, especially because it is not something you buy in a normal brokerage account.
This article will break down oil and gas DPP investments in a way that stands on its own, so you can understand what it is, how the tax benefits work, who it is right for, who it is not right for, and what implementation looks like when working with a proactive tax planning firm.
Quick disclaimer: Every tax situation is different. This is educational information, not personal tax advice. Always consult a qualified tax strategist before implementing any advanced tax strategy.
With that said, let's jump into Oil and Gas DPP Investments for Solopreneurs: What They Are, Who They’re For, and How They Cut Taxes
What is an oil and gas DPP investment
Oil and gas DPP stands for direct participation program. It is a private investment structure where investors directly participate in domestic oil and gas drilling projects. These investments are almost always structured as partnerships, which means the tax benefits and income flow through to your personal return via a K 1.
This is not the same thing as buying stock in a public oil company. You cannot log into your brokerage and purchase it like you would a mutual fund or ETF. Oil and gas DPPs are private, vetted offerings designed for accredited investors.
Why does this strategy exist at all? Congress created these incentives decades ago to encourage domestic energy production. The IRS rewards investors who take on drilling risk by giving unusually strong first year tax deductions. The result is one of the simplest advanced tax strategies available for solopreneurs who qualify.
The core tax advantage: a large first year deduction plus passive income later
Oil and gas DPP investing works in two major phases.
Phase 1: upfront deduction
Historically, oil and gas DPP investments typically produce an 80 to 85 percent deduction in the year you invest. That deduction lowers your taxable income, and the actual tax savings depend on your bracket. For many high income solopreneurs in the top federal bracket, this can reduce taxes by roughly 30 percent of the deductible amount.
Example in plain English
If you invest 100,000, you may receive an 80,000 deduction.
At a 37 percent federal bracket, that deduction could reduce your federal tax bill by about 29,600.
You did not spend 100,000. You moved 100,000 into an investment that is now more tax efficient.
If you also pay state income tax, the savings can be even larger, because the first year treatment is active, not passive.
Phase 2: passive income stream
After year one, most DPPs shift to passive income for investors. That income often arrives quarterly and can last up to 10 years depending on the project. Since it is passive K 1 income, it is generally not subject to self employment tax.
This combination is the magic of the strategy. First year deduction against active income now, passive income later with favorable treatment.
Who oil and gas DPP investing is right for
Oil and gas DPP investments are best suited for solopreneurs who meet a few clear criteria.
You are a high income earner
To qualify, you generally need to be an accredited investor. That typically means either:
A married filing jointly household income around 300,000 or more for the last two years, or
A net worth of 1 million or more excluding your primary home
You have real tax exposure
If you are already paying significant taxes, this strategy becomes powerful. It is especially compelling when you are in a high bracket year and want to redirect dollars away from the IRS and into wealth building.
You want to diversify income streams
Many solopreneurs already have retirement assets or real estate. Oil and gas adds a different kind of income stream that is not tied to the stock market in the same way.
You have enough liquidity
Oil and gas DPPs are not liquid. You should not invest money you may need back quickly. Most investors recover the bulk of their principal over the first few years, then profit after that, but you cannot treat it like a savings account. This is a long range wealth move.
Who oil and gas DPP investing is not right for
This strategy is not for everyone. A good tax planning firm will tell you that directly.
You are cash poor or cash sensitive
If investing 25,000 to 100,000 would create stress or leave you without a comfortable liquidity cushion, oil and gas is not the right move right now.
You need liquidity soon
If you expect to use those funds for a house down payment, business expansion, or personal needs in the next 12 months, this strategy is likely not a fit.
You are not an accredited investor
Private DPP offerings are regulated. If you do not meet accredited standards, you cannot legally invest.
You want a “box checking” strategy
Oil and gas is powerful, but it is not magic. It works best in a broader tax plan with real implementation and documentation.
How risky is this strategy
All investments carry risk, but oil and gas DPPs tend to be lower risk than many solopreneurs assume.
The main risk is not getting a big return, not losing your principal outright. In practice, the projects we use are diversified across many wells, which dramatically lowers the chance of total loss. And because energy demand remains steady, returns are generally not correlated with stock market swings the way other investments are.
That said, no one should promise you a guaranteed return. If someone is guaranteeing zero risk, that is a red flag. The real safety comes from choosing reputable, well diversified projects and pairing them with clean tax reporting.
How implementation works with a tax planning firm
This is not a strategy you want to do alone. There are two main reasons.
First, there are sketchy operators in the private investment space. The quality of the offering matters. A lot.
Second, your tax preparer must report the K 1 correctly. The first year K 1 treatment is active because investors are general partners. If a preparer mistakenly reports it as passive, you can lose tens of thousands in savings.
At Oakenshield Tax Advisors, the process usually looks like this:
We confirm oil and gas fits your broader tax strategy and cash flow
We introduce you to a vetted oil and gas specialist
You attend a no pressure info meeting to understand the project, timelines, and expected outcomes
If you choose to invest, the specialist handles the investment steps
We coordinate with your tax preparer to ensure the K 1 is filed correctly
In year two and beyond, we track ongoing passive income and layer other strategies around it as needed
Important note: oil and gas is rarely a one and done move. It is best used as part of a multi year plan, paired with other strategies like Roth conversion timing, real estate depreciation planning, or future deferral decisions.
The bottom line
Oil and gas DPP investments are one of the simplest advanced tax strategies for high income solopreneurs because they offer:
a major first year deduction
a long term passive income stream
diversification outside stocks and typical retirement vehicles
favorable tax treatment when implemented correctly
The catch is simple. This is an illiquid investment. You need to have the right cash flow, the right income level, and a tax strategist who understands how to apply it properly.
If that is you, this strategy can meaningfully reduce your tax bill while building real wealth.
Want the full strategy roadmap?
Get the FREE Tax Strategy Playbook here:
https://www.oakenshieldtax.com/book
It includes the most important tax strategies for solopreneurs, ranked by impact, and helps you see what applies to your specific situation.
Netting over 175K as a solopreneur?
If you are netting over 175,000 per year, there is a strong chance you are overpaying taxes right now, even if your accountant is excellent at filing.
Filing records history. Tax planning shapes outcomes.
Apply to work with Oakenshield Tax Advisors here:
https://go.oakenshieldtax.com/apply
We will review your situation and map out the proactive tax strategy that fits your business, your goals, and your income level.
Other resources to help you get started with tax planning
Oil and Gas DPP Quick Checklist:
Use this checklist to decide whether oil and gas DPP investing fits your tax plan this year.
Qualification
I meet accredited investor standards (income or net worth).
I have significant taxable income this year and want to reduce it legally.
I want to diversify beyond standard retirement accounts or real estate.
Liquidity and fit
I have enough liquid cash to invest without stressing my lifestyle or business.
I do not need access to this money in the next 12 months.
I understand this is an illiquid, long term investment.
Strategy and execution
I am working with a tax planning firm, not just a tax filer.
The DPP offering is vetted and diversified across many wells.
My tax preparer knows how to report first year active K 1 treatment correctly.
I see oil and gas as one piece of a broader multi year tax strategy.
Next step
I downloaded the FREE Tax Strategy Playbook to see what applies to my situation:
https://www.oakenshieldtax.com/bookIf I am netting over 175K, I am ready for a proactive plan and want to apply:
https://go.oakenshieldtax.com/apply
