Master Limited Partnerships (MLPs) are good long-term investments for investors who want to defer their taxes and earn high, low-tax income now—and they make an especially powerful tax shelter when passed on to heirs.
But let’s start with what is a Master Limited Partnership (MLP)?
A Master Limited Partnership is a unique type of business allowed under the U.S. tax code. They’re similar to a “regular” limited partnership, with a few differences.
In addition to a limited partner or partners, who provide the MLP with capital and get a share of its cash flow in return, MLPs also have a General Partner (GP) that runs the business.
MLPs are also publicly traded, by definition. The limited partners are public shareholders—who are called unitholders. The unitholders are entitled to a share of the MLP’s cash flow, which is paid to them as distributions. From an investor’s point of view, these distributions are similar to common stock dividends: their amount is usually declared (announced) at the beginning of the fiscal year, and the distributions are then paid to the unitholders quarterly or monthly.
There are some differences though, and most of the differences are related to the taxes you pay on distributions.
That’s because the primary benefit of organizing a business as an MLP is that MLPs don’t pay corporate taxes on their revenue. Instead, the company’s cash flow is distributed, almost in its entirety, to its unitholders … who are then responsible for some taxes.
That makes MLPs a very efficient way to pass along the cash flow of an income-generating enterprise to public shareholders. And that’s what accounts for their large distributions and very high yields.
It does make your taxes a bit more complicated. But our Premium Report The Ultimate Guide to Choosing, Owning and Selling Master Limited Partnerships will show you how to deal with the taxes, along with everything else you need to know about MLPs.
And one more note on what makes an MLP: not just any business can be organized as an MLP. The tax code requires MLPs to derive about 90% of their revenue from natural resources, commodities, or real estate. In practice, many MLPs own energy transportation or processing facilities, like oil or gas pipelines, although there are also MLPs that own unique assets such as cemeteries. Any business in one of these industries that generates high regular cash flow, whether from rent, fees or simply selling goods, can make a good MLP.
Right now, with our Financial Freedom Premium Report The Ultimate Guide to Choosing, Owning and Selling Master Limited Partnerships, you get everything you need to know about MLPs, so you can decide if these types of investments are for you!
This Premium Report The Ultimate Guide to Choosing, Owning and Selling Master Limited Partnerships will deliver informative and practical advice about this type of investing strategy and includes:
- Why Invest in Master Limited Partnerships (MLPs)?—get all the reasons why you should consider this type of investment.
- What is a Master Limited Partnership (MLP)?
- How to Assess MLPs—evaluating MLPs is a little different from evaluating an ordinary stock.
- How Do I Pay Taxes on My MLPs?—because MLPs don’t pay taxes at the corporate level, you will owe taxes on your investing returns. Learn how to defer the tax burden!
- What Happens if All My Capital is Eventually Returned?
- The K-1—learn all about this tax-reporting form and how it’s different from the 1099-DIV.
- What Happens When I Sell the MLP?
- Do I Have to Pay Taxes in Every State Where the MLP Operates?
- Can I Hold MLPs in my IRA?
- Some Examples of MLP Investing—get specific scenarios, to demonstrate how you can benefit from MLP investments.
With all the specific and practical advice in this Premium Report The Ultimate Guide to Choosing, Owning and Selling Master Limited Partnerships, you’ll get all your questions answered about how MLPs might be right for your investing strategy!
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