Master Limited Partnerships (MLP) are a type of limited partnership that is publicly traded. The advantage of an MLP is that it combines the tax benefits of a limited partnership with the liquidity of a publicly traded company.
MLPs have more attractive tax characteristics than corporations. Corporations are subject to double taxation from the view point of shareholders, whereas MLPs are not. We see the biggest benefit in the depletion and depreciation of the MLP. As a result of its structure, an MLP gets to pass its depreciation of assets and expenses through to investors, who may be able to use the pass-through expenses to reduce or eliminate the tax on the income received from that particular investment.
MLPs can greatly complicate a tax situation. When you own an MLP, you own a portion of the partnership. During tax season, you will receive a K-1, which is a tax document that reports your share of the partnership’s income and deductions. Investors should pay close attention to the K-1, because the various items of income or deductions may flow to different forms on your personal tax return. This can make your tax return fairly complex.
It doesn’t take a big investment to complicate your taxes. If you are considering only a minimal investment in an MLP, you may want to consider how much it may raise your tax preparation fees.
Henssler Financial Believes You Should Live Ready. That means knowing how your invstments may affect your taxes. If you have questions, contact the Tax Experts at Henssler Financial: experts@henssler.com or 770-429-9166.
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Disclosures
The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
