Master Limited Partnerships For Big Dividends …

May 20th, 2008 · No Comments

The typical company is a plain old corporation, a separate legal entity from its employees and investors. They’re treated as separate legal entities come tax time, too.

Thus, if shareholders receive dividends, they’ll eventually pay taxes on the income, too. That’s why some companies choose to organize as partnerships, which are not considered separate legal entities. In other words, the partners are liable for the obligations of the partnership but also get all the direct benefits. Example: Master Limited Partnerships (MLPs), also known as publicly traded partnerships (PTPs).MLPs are required by law to pay out most of their cash flow to partners in the form of regular quarterly distributions. By all appearances, these payments look like plain ol’ dividends. However, there’s an important difference at tax time — the bulk of the quarterly distributions are considered a return of capital and not taxable investment income.Translation: Most of your distributions are tax deferred!To learn more about how it all works, check out this article on Money and Markets.