{"id":8220,"date":"2012-11-12T08:00:11","date_gmt":"2012-11-12T15:00:11","guid":{"rendered":"http:\/\/dailyimprovisations.com\/?p=8220"},"modified":"2012-11-11T13:21:55","modified_gmt":"2012-11-11T20:21:55","slug":"investing-in-master-limited-partnerships-an-investment-by-any-other-name-with-different-tax-rules-and-government-regulation-of-industry","status":"publish","type":"post","link":"https:\/\/dailyimprovisations.com\/investing-in-master-limited-partnerships-an-investment-by-any-other-name-with-different-tax-rules-and-government-regulation-of-industry\/","title":{"rendered":"Investing in Master Limited Partnerships &#8211; An Investment by Any Other Name with Different Tax Rules and Government Regulation of Industry"},"content":{"rendered":"<p><strong>I just heard of <a href=\"http:\/\/www.investopedia.com\/terms\/m\/mlp.asp#axzz2Bw4bn5sW\" target=\"_blank\">Master Limited Partnerships<\/a> (MLPs) for the first time this month.<\/strong> \u00a0Initially, I was intimidated. \u00a0However, after some discussion at the November <a href=\"http:\/\/www.aaii.com\" target=\"_blank\">AAII <em>(American Association of Individual Investors)<\/em><\/a> <a href=\"http:\/\/www.aaii.com\/chapters\" target=\"_blank\">Boise Group<\/a> meeting, as well as some research at home, I realized it&#8217;s just another way that the government complicates our lives with a hieroglyphic tax code and it&#8217;s constant meddling in the business world.<\/p>\n<p><strong>The gist of it is this:<\/strong><\/p>\n<ul>\n<li><span style=\"color: #800000;\">MLPs were set up as an investment structure in the 1980s to stimulate investment into certain industries that<em> the government<\/em> wanted to grow. \u00a0The target industries were energy related, but these are not utility companies. \u00a0Companies involved in producing and moving energy products, such as oil, were the main emphasis.<\/span><\/li>\n<li>MLPs utilize\u00a0<em>company organizational models<\/em> much like partnerships, but allow for multiple &#8220;partners&#8221; being able to invest money without being part of the management engine.<\/li>\n<li><span style=\"color: #800000;\">There are two kinds of partners in an MLP. \u00a0The manager, or general, partners run the company. \u00a0The limited partners, or unit holders, provide<\/span> <a href=\"http:\/\/www.investopedia.com\/terms\/c\/capital.asp#axzz2Bw4bn5sW\" target=\"_blank\">capital<\/a>.<\/li>\n<li>The government requirements for what can qualify as an MLP have changed some over the years, as the government decided to limit even more what types of businesses would receive preferential tax treatment.<\/li>\n<li><span style=\"color: #800000;\">MLPs <em>affect everyone&#8217;s taxes differently<\/em> because the investor&#8217;s return from the investment is taxed based on overall individual tax liability, as opposed to the standard rate <em>(whatever rate that happens to be at a given time)<\/em> at which capital gains are taxed.<\/span><\/li>\n<li>MLPs are now traded basically like shares of stock, but are given the technical term of &#8220;unit.&#8221;<\/li>\n<li><span style=\"color: #800000;\">MLPs are obligated to disburse a certain (high) percentage of their profits back to the limited partners. \u00a0Because of this, they are considered a good investment choice for many who need to be receiving income from their investments.<\/span><\/li>\n<li>There is no reason to hold MLPs in an <a href=\"http:\/\/www.investopedia.com\/terms\/i\/ira.asp#axzz2Bw4bn5sW\" target=\"_blank\">Individual Retirement Account (IRA)<\/a>.<\/li>\n<\/ul>\n<p><strong>Because MLPs are not taxed the same way as common stocks, there are a few things that should be evaluated by each investor before investing in an MLP:<\/strong><\/p>\n<ul>\n<li><span style=\"color: #008000;\">The distribution structure for MLPs makes it challenging for them to get final tax information to the investors before March.<\/span><\/li>\n<li>The tax information will arrive on what is called a &#8220;K-1&#8221; form.<\/li>\n<li><span style=\"color: #008000;\">It might be a good idea to talk to your accountant, if you use one, before adding MLPs to the mix, even if it does sound like it never added more than $20 to an accountant&#8217;s bill. \u00a0Also, apparently Turbo Tax is set up to allow those who do their own taxes to figure it out with no extra cost.<\/span><\/li>\n<li>There may be a small chance of being taxed on phantom income in some cases.<\/li>\n<li><span style=\"color: #008000;\">There have been some concerns about tax changes for MLPs going on right now. \u00a0This article at<\/span> <a href=\"http:\/\/seekingalpha.com\/article\/181146-a-closer-look-at-master-limited-partnerships-and-taxation\" target=\"_blank\">Seeking Alpha<\/a> <span style=\"color: #008000;\">seems to be up-to-date and helpful.<\/span><\/li>\n<\/ul>\n<p><span style=\"color: #000000;\"><strong>If you think you might want to invest in MLPs, you can use a <a href=\"http:\/\/www.investopedia.com\/terms\/s\/stockscreener.asp#axzz2Bw4bn5sW\" target=\"_blank\">screen<\/a>,\u00a0just like what can be used when choosing a stock. \u00a0\u00a0<\/strong><a href=\"http:\/\/screener.finance.yahoo.com\/newscreener.html\" target=\"_blank\">Yahoo! Finance Screener<\/a>\u00a0is a good, free place to start. \u00a0If you have an account with an online\u00a0<a href=\"http:\/\/www.investopedia.com\/terms\/b\/broker-dealer.asp#axzz2Bw4bn5sW\" target=\"_blank\">broker<\/a>\u00a0<em>(like\u00a0<a href=\"https:\/\/www.fidelity.com\/?imm_pid=1&amp;immid=00486&amp;imm_eid=e3185815&amp;buf=999999\" target=\"_blank\">Fidelity<\/a>, <a href=\"http:\/\/www.scottrade.com\" target=\"_blank\">Scottrade<\/a> or <a href=\"https:\/\/www.schwab.com\/?src=nay&amp;sv1=s4TKXEeMN&amp;sv2=4002404137&amp;sv3=xpxe4op6q0\" target=\"_blank\">Charles Schwab<\/a>, for example)<\/em> they probably have the tools to do this on their websites. \u00a0You should be able to determine if the MLP\/company has a history of growth and good management.<\/span><\/p>\n<p>A more thorough explanation of MLPs can be found on the\u00a0<a href=\"http:\/\/www.naptp.org\/?kloc=NONE\" target=\"_blank\">National Association of Publicly Traded Partnerships<\/a> (NAPTP) website, and by clicking on <a href=\"http:\/\/www.naptp.org\/documentlinks\/Investor_Relations\/MLP_101.pdf\" target=\"_blank\">this link to their pdf that specifically talks about MLPs<\/a>. \u00a0Which ever way you decide with MLPs, <em>don&#8217;t let the government&#8217;s web of a tax code keep you from managing and investing your money in the most fruitful way possible!<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>I just heard of Master Limited Partnerships (MLPs) for the first time this month. \u00a0Initially, I was intimidated. \u00a0However, after some discussion at the November AAII (American Association of Individual Investors) Boise Group meeting, as well as some research at home, I realized it&#8217;s just another way that the government complicates our lives with a [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[28,27],"tags":[48],"_links":{"self":[{"href":"https:\/\/dailyimprovisations.com\/wp-json\/wp\/v2\/posts\/8220"}],"collection":[{"href":"https:\/\/dailyimprovisations.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dailyimprovisations.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dailyimprovisations.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dailyimprovisations.com\/wp-json\/wp\/v2\/comments?post=8220"}],"version-history":[{"count":0,"href":"https:\/\/dailyimprovisations.com\/wp-json\/wp\/v2\/posts\/8220\/revisions"}],"wp:attachment":[{"href":"https:\/\/dailyimprovisations.com\/wp-json\/wp\/v2\/media?parent=8220"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dailyimprovisations.com\/wp-json\/wp\/v2\/categories?post=8220"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dailyimprovisations.com\/wp-json\/wp\/v2\/tags?post=8220"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}