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MLPs and Your Taxes: What You Need to Know

Master limited partnerships have been a lucrative investment over the years, with solid income that carries tax advantages over other investments. But many investors are scared to death of the tax complications of MLP investing.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, runs through the basics of MLP taxation. Dan notes that because MLPs incur no entity-level taxes, their investors have to deal with pass-through taxation via K-1 forms. That introduces a big headache for tax purposes, as K-1s are more complex than regular 1099 forms on other investments and can also have state income tax implications even for states other than where you live. But Dan notes that some companies have offered solutions to the tax issue, with Kinder Morgan Energy Partners (NYSE: KMP  ) offering investment opportunities through Kinder Morgan Management (NYSE: KMR  ) and Kinder Morgan (NYSE: KMI  ) , while Linn Energy (NASDAQ: LINE  ) has its related LinnCo (NASDAQ: LNCO  ) entity. Dan concludes that taxes shouldn't be your only consideration with MLP investing, but it's important to understand the issues involved before you invest.

Take advantage of this little-known tax "loophole"
Learn more about the tax benefits of master limited partnerships in the latest report from The Motley Fool. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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