Most people don’t know, but you can invest in limited partnerships. Instead of purchasing stock shares, you are trading in “Limited Partnership Units”. They are usually referred to as LP Units.
Are Limited Partnerships Different From Stocks?
These are special investments that do differ from stocks in many ways. They have completely different tax implications that you should be aware of.
What’s a Master Limited Partnership?
If an entity is a “Master Limited Partnership” it just means that they are publicly traded. The Government only allows specific types of partnerships to become Master Limited Partnerships.
What Types of Businesses can be MLPs?
Most businesses trading as Master Limited Partnerships are in commodities, natural resources, real estate, or the financial sector.
What are the Tax Implications of MLPs?
Businesses that are MLPs don’t pay Federal of State Income Tax. If you have invested in an MLP, you will need to declare your share of the profits or losses on your personal income tax. Earnings are usually higher on MLPs, and paid through distributions. This is because the income tax that the company saves gets passed on to the investor.