Computing » Hardware. Business » General Business -- and more Computing » Networking. Community » Religion. Computing » General Computing -- and more Computing » Telecom. Miscellaneous » Unclassified. Internet -- and more Governmental » Military -- and more Community » Non-Profit Organizations. Miscellaneous » Unclassified -- and more Internet » Websites.
Business » Toronto Stock Exchange. We're doing our best to make sure our content is useful, accurate and safe. If by any chance you spot an inappropriate comment while navigating through our website please use this form to let us know, and we'll take care of it shortly.
Forgot your password? Retrieve it. Abbreviation » Term. Term » Abbreviation. Word in Term. Term » Abbr. Filter by: Select category from list Couldn't find the full form or full meaning of MLP? Discuss these MLP abbreviations with the community: 1 Comment. Notify me of new comments via email.
Fahima Begum. Like Reply Report 7 years ago. Cancel Report. Create a new account. Log In. Know what is MLP? Got another good explanation for MLP? Don't keep it to yourself! An MLP is treated as a limited partnership for tax purposes. A limited partnership has a pass-through, or flow-through, tax structure. This taxing method means that all profits and losses are passed through to the limited partners. In other words, the MLP itself is not liable for corporate taxes on its revenues, as most incorporated businesses are.
Instead, the owners—or unitholder investors—are only personally liable for income taxes on their portions of the MLP's earnings. This tax scheme offers a significant tax advantage to the MLP. Profits are not subject to double taxation from corporate and unitholder income taxes.
Standard corporations pay corporate tax, and then shareholders must also pay personal taxes on the income from their holdings. Further, deductions, such as depreciation and depletion, also pass through to the limited partners. Limited partners can use these deductions to reduce their taxable income. Qualifying income includes income realized from the exploration, production, or transportation of natural resources or real estate.
This definition of qualifying income reduces the sectors in which MLPs can operate. Quarterly distributions from the MLP are not unlike quarterly stock dividends. But they are treated as a return of capital ROC , as opposed to dividend income. So, the unitholder does not pay income tax on the returns. Most of the earnings are tax-deferred until the unitholder sells their portion. Then, the earnings are taxed at the lower capital gains tax rate, rather than at the higher personal income rate, thus offering significant additional tax benefits.
Like any investment, MLPs have their pros and cons. MLPs may not work for all investors. Also, an investor must offset the disadvantages against any benefits of holding units of MLPs before they invest. MLPs are known for offering slow investment opportunities.
The slow returns stem from the fact that MLPs are often in slow-growing industries, like pipeline construction. This slow and steady growth means MLPs are low risk. They earn a stable income often based on long-term service contracts. MLPs offer steady cash flows and consistent cash distributions. The cash distributions of MLPs usually grow slightly faster than inflation. Overall, this lets MLPs offer attractive income yields—often substantially higher than the average dividend yield of equities.
Also, with the flow-through entity status and avoiding double taxation , more capital is available for future projects. The availability of capital keeps the MLP firm competitive in its industry. Further, for the limited partner, cumulative cash distributions usually exceed the capital gains taxes assessed once all units are sold.
There are benefits to using MLPs for estate planning , as well. When unitholders gift or transfer the MLP units to beneficiaries, both unitholders and beneficiaries avoid paying taxes during the time of transfer.
The cost basis will readjust based on the market price during the time of the transfer. Should the unitholder die and the investment pass to heirs, their fair market value is determined to be the value as of the date of death. Also, earlier distributions are not taxed. MLPs are extremely tax-efficient for investors. However, the filing requirements for this business structure are complex. While K-1 forms create extra work for investors or the tax professional they hire , the structure of MLPs allows investors to avoid the double-taxation that is typical of investments in C-Corporations.
Also, as an added problem, some MLPs operate in multiple states, and the flow-through status of MLPs also holds on the state level. MLP investors are required to pay state income taxes on their allocated portion of income in each state in which the MLP operates, which increases their costs.
Another tax-related disadvantage of MLPs is that you cannot use a net loss—more losses than profits—to offset other income. However, net losses may carry forward to the following year.
When you eventually sell all your units, a net loss can then be used as a deduction against other income. A final negative is limited upside potential—historically—but this is to be expected from an investment that is going to produce a gradual yet reliable income stream over several years. Most MLPs currently operate in the energy industry. An energy master limited partnership EMLP will typically provide and manage resources for other existing energy-based businesses. Examples might include firms that provide pipeline transportation, refinery services, and supply and logistics support services for oil companies.
Many oil and gas firms will issue MLPs instead of shares of stock. With this structure, they can both raise capital from investors while still maintaining a stake in operations.
Some corporations may own a sizable interest in their MLPs. Separate stock-issuing companies are also set up, with their sole interest being to own units of the corporate's MLP. This structure allows redistributing the passive income through the corporation as regular dividends. An example of this structure was Linn Energy Inc. Investors had the option to choose—for tax purposes—how they would like to receive the income the company generated. The firm was dissolved in after filing for bankruptcy in It was reorganized in as two new companies: Riviera Resources and Roan Resources.
Investors in LINE were given an exchange offer to convert their units into shares of the new entities. As many MLPs operate in the resources sector, their fortunes are determined by volatile energy and commodities prices as evidenced by Linn Energy's bankruptcy. An investor interested in buying MLPs could consider investing in a portfolio of MLPs that is diversified across sectors in order to reduce risk. Corporate Finance.
Tax Laws. Income Tax.
0コメント