Tweet
Was looking into an MLP but not overly familiar with the cons and/or benefits of doing some investing in this way.
Hoping some of you are familiar with this.
Hoping some of you are familiar with this.
-
-
Master Limited Partnership (MLP) Definition
I know a pretty good deal about regular Partnership structures, but don't deal with MLPs.
The MLP is just a different business structure. Like a corporation, or LLC, or proprietorship - an MLP is just a Partnership whose LP interests are publically traded.
From what I read on it, the MLP will be a flowthrough entity that passes all income onto the LPs - in this case, shareholders. Thereby avoiding taxation at the entity level. If it were a corporation, it would be taxed as a corporation at corporate rates. Since it's a partnersip, the partnership itself does not incur any taxes, but income flows through to the LPs and then is taxed at their individual rates.
What that means for you tax-wise, is that all income paid to you will be taxed as ordinary income (not at the special 15% dividend rate) - And if the company earns $1 million and has 1 million shares, of which you own 1 share - you will have to add $1 to your income at the end of the year - whether they distribute it or not. But since the MLP must distribute at least 90% of its earnings, you'll likely get some dividends from the company to help you pay those taxes.
But you are still elligible for long term cap gain rates of 15% on the stock itself. (If you buy at $25, hold for over 1 year and it goes up to $35, you would only be taxed at 15% on the $10 price appreciation gain)
Is this something you should do? Well if you are in a high tax bracket, it may be slightly less advantageous to you - so you might want to stick to regular growth stock companies, whose dividends are more favorably taxed upon receipt. -
Sorry, not familiar with this. It sounds like it is related to starting a business.Comment
Comment