An investment that holds together the tax advantage of a limited partnership is called the Master Limited Partnership or MLP. It is a unique investment that involves the liquidity of a publicly traded stock. It thus allows stockholders to buy or sell their stocks quickly like Jay Hatfield. If you are thinking about MLP investing, it must be known to you that the security exchange is just the same as of other tax exchanges in different companies. Real estate, financial services, or natural resources sectors, a company must be able to gain most of the revenue from all those sectors.
Existing tax policies in Master Limited Partnership.
If you prop up a question as to why a company wants to go for a business structured as a MLP, the main reason for this is the avoidance of tax. So, if the company is recognized as a master limited partnership, then that company will not be subjected to double taxation which shall include the process to pay taxes at both corporate and personal levels. These companies will be taxed only once. They shall be taxed on their individual portions of the MLP’s income, losses, gains, profits, over heads and deductions. Hence, MLPs are subjected to make distributions that are similar to dividends to its unit holders on a quarterly basis. These distributions are also not taxed when they are received. This is quite unlike dividends and the reason behind this being the return of principal.
How the MLPs work on tax deductions?
The principal return results in a high yield. The money which would have been paid for income taxes are now being distributed to investors. Tax law also allows companies to depreciate money invested in an asset. Those deductions are allowed to pass through to the unit holder by the MLPs. You can pay no tax until deciding to sell the investment. The investor has to pay taxes over the realized capital gains after the selling point. Thus, the investors end up paying very less than they usually do as the capital gains are taxed at a lower tax rate.