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I've been reading up on taxation of MLP investments, and the following is from an Investopedia article:
"A downside of holding MLPs is that many of them invest in pipelines that run through several states. You may have to pay state income taxes, but some states offer exemptions."
How do I find out whether a certain MLP would result in paying state income taxes? I don't want a small investment in an MLP to result in a big headache come tax time.
Is anyone out there familiar with/experienced in MLP investing & taxation?
I owned MLPs for a number of years and only had to pay state income taxes to the state in which I live. I don't know what that article is referencing, especially since I suspect most pipelines run through more than one state.
I've been reading up on taxation of MLP investments, and the following is from an Investopedia article:
"A downside of holding MLPs is that many of them invest in pipelines that run through several states. You may have to pay state income taxes, but some states offer exemptions."
How do I find out whether a certain MLP would result in paying state income taxes? I don't want a small investment in an MLP to result in a big headache come tax time.
Is anyone out there familiar with/experienced in MLP investing & taxation?
I am not an expert, and I avoid MLP's, but I do understand that MLP's come with a K1 tax form that many investors consider a headache. If you're interested in investing in pipelines, there are several ways to invest through C-Corp companies like OKE or WMB and avoid the hassle.
How do I find out whether a certain MLP would result in paying state income taxes?
You would have to ask them or read their data. Or pay someone to. Or find a Karen.
The LP holding 'problems' are when the investor doesn't live in the same state as the investment.
Similar 'problems' come up with tax exempt Municipal Bonds held outside their state.
Quote:
I don't want a small investment in an MLP to result in a big headache come tax time.
Then stick with the index funds.
btw, Whether you should be in ANY petroleum deal raises a whole other set of Q's.
Have had them for years. Only paid state income tax in the state I lived in.
However they can be a pain in an IRA and the federal gov may actually tax you on part of their earnings.
Thanks. I think I'll do a bit more research before I jump into any of these.
Oh, and apologies if I should've posted this in the Investing forum.
ETA: I'm looking into Enterprise Products Partners L.P. (EPD)
EPD is a popular MLP investment, but be sure to compare to the others I mentioned. The standard C-Corp pipeline plays like OKE and WMB (and others) avoid all of the headaches.
It's the favorable tax treatment of MLP distributions (as capital gains vs ordinary income) that has me interested in learning more about them. I agree they aren't appropriate for an IRA.
It's the favorable tax treatment of MLP distributions (as capital gains vs ordinary income) that has me interested in learning more about them.
Dividend payments from C corporations are, generally speaking, classified as qualified dividends. These are taxed at the same rate as long-term capital gains. There's a minimum holding period, but it's not excessive...
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