How to Invest in MLP Stocks
Dividend-paying stocks are an excellent tool for investors to not only earn income but also outperform the market. That's because the best dividend stocks have historically outpaced the S&P 500 by a wide margin. However, one issue many investors have with them is how the government taxes dividends. Not only do corporations pay taxes on their earnings before they pay dividends, but investors also often pay an additional tax on this income at the individual level. This double taxation eats into an investor's return.
One way investors can avoid this double taxation is by investing in master limited partnerships (MLPs), which are entities that have chosen to structure as partnerships for tax purposes. Because of that, they don't pay any corporate income taxes. Instead, the partnership's income passes through so that it's only taxed once, at the level of the individual partner. That tax rate tends to be lower than the corporate one. Furthermore, since MLPs also pass through deductions like depreciation, taxes are often deferred. This structure enables investors to avoid double taxation and keep more of the profit.
These are just some of the factors that differentiate MLPs from other investments. This guide will help investors better understand MLPs so that they can determine whether these tax-advantaged entities are right for their portfolios.
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