Owning MLPs Can Pay Dividends: A Look at Tax Implications

MLPs have had a spectacular run from their lows two years ago. But one drawback of investing in MLPs is the associated tax hassle. Ownership is measured in units of the partnership, which pay distributions that have a fair amount of tax hassle. Most of the distributions are not taxed immediately but federal taxes are due on the remainder along with state taxes where a partnership has business. There is also a large amount of record keeping to be used when the units are eventually sold. It is possible to invest in MLPs by purchasing shares in corporations that pay dividends with minimal or no tax hassle.Kinder Morgan (KMP) (KMR) and Enbridge Energy (EEP) (EEQ) are two of the largest MLPs. Each company has units in the partnerships and a second (stock) company for ownership. The corporation pays stock dividends that are not taxable events, the ultimate in tax... Read more