limited master partnership

MLPs have several advantages that make them appealing investments.  One key advantage is the absence of double taxation when it comes to paying dividends to investors.  Common stockholders, for example, are essentially taxed twice on company earnings: once at the corporate level (the company itself has to pay taxes to the US government on earnings) and again when they receive dividend payments.

MLP unitholders, however, only pay taxes when they receive a dividend payment (called a “distribution”).  Further, MLPs can defer paying taxes on the majority of the distribution until the units are actually sold.  Not bad, eh?

Always Know the Downside

Don’t forget to do your research.  In some cases, MLP unitholders may have to pay taxes in each state where the partnership operates.  I strongly encourage everyone to consult a tax advisor before attempting to invest in these vehicles.  They can be great investments only if you do the research and follow the rules.