In the past I've been very annoyed with the various shenanigans of companies such as when they decide to return capital or pay out the dividend in shares or otherwise increase my level of paperwork.
I want to know if there are any such dangers/risks of more paperwork before I buy a shares in an LP?
[For those who care about the details, I'm looking at NASDAQ:STON]
I have only had to fill out one for UNG. It was pretty basic. I hope theres some good answers in this thread. LP's seem to pay such a high dividend it would help a lot to achieve FI.
Yes, there's more paperwork with an MLP. Three basic things:
1) The annual statement that lists income will come at the end of February and it should indicate which forms to distribute that income onto (short term cap gains, long term cap gains, business income, dividends, and natural resource royalties are some of the additional forms that I've had to file)
2) If you trade the shares, then your cost basis is reduced by any return of capital each time you sell. The companies I've had provided good info on that, even if I've traded quarterly, though they might get confused as to how much is in an IRA vs. a taxable account and it's up to you to sort that out.
3) You're responsible for state income taxes in states the company operates within. Generally if the income in a particular state is under, say, $500, then don't bother filing for that state.
If you only have one MLP, it's a breeze. If you have a half dozen and never did this before, it's a nightmare... build up your MLP collection slowly until you see what's involved at tax time.
For tax purposes, does LP=MLP?
I owned GNI for a few years. It was an iron ore trust, so I had a few more tax forms to file. But they sent very clear, detailed instructions about how to file. And the IRS website made downloading the forms easy. The biggest problem I had was that Scottrade didn't send me the proper 1099, which complicated the filing a bit. (I had to add, then subtract dividends from Schedule B to wash out the faulty 1099.)
IMHO the added yield for a MLP is worth the minor aggravation.
Jacob - from the investor relations page at STON's corporate site:
"StoneMor completed an IPO in September 2004 and is the only publicly traded death care company structured as a master limited partnership. As an MLP, STON benefits from the favorable tax treatment provided by this structure, which in turn allows unit holders to enjoy a high current yield on their units and realize tax-deferred distributions for as long as they hold their investment."
MLPs send a Schedule K-1 rather than a 1099. Just look at the K-1 and you'll see it is more complex than a 1099-INT or DIV. Losses from MLPs are considered passive and thus not deductible until you have passive income (as defined by the IRS, not what bloggers consider passive) or until you sell the entity.
Distributions are simply considered return of capital and thus reduce basis. There are other issues, but that is it in a nutshell. The tax issues are definitely doable, just take a little more time. Also, partnership K-1s aren't due out until 4/15, so it may delay your tax filing. We have that issue with several clients each year.
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