If you haven’t visited AAII.com recently, please take some time today to see what the website offers. Plenty of helpful resources are available at your fingertips to aid you in the investment process. For over 20 years, the AAII Model Shadow Stock Portfolio has reflected the investment philosophy of AAII founder James Cloonan. In short,…
If you haven’t visited AAII.com recently, please take some time today to see what the website offers. Plenty of helpful resources are available at your fingertips to aid you in the investment process. The exchange-traded fund industry is continuing to experience strong growth, with assets under management (AUM) up 30% from 12 months ago. With…
This week’s Sentiment Survey special question asked AAII members about the most important qualities/characteristics they look for in a stock they wish to buy, and why. Roughly 22% of respondents said that they look for an attractive dividend yield or an increasing dividend payment. Approximately 12% of respondents said that they look for strong earnings…
In the second part of our interview with John Bogle, he discusses how investors commonly put too much emphasis on past performance. Plus, he offers his views on high-frequency trading. Read more »
One of the biggest risks to investors’ net worth is the portfolio decisions they make. Failing to adhere to an appropriate long-term strategy has a significant damaging impact on wealth. Since wealth is generated from the compounding of returns, actions that severely reduce an investor’s portfolio balance can have a long-term impact. A common dangerous…
The unique structure of MLPs gives them tax advantages, but also makes them more complex. Find out how distributions and gains are taxed.
So you’ve finally bought some shares in a master limited partnership (MLP) after hearing everyone rave about this equity investment that gives you a high yield, pays out cash every quarter and has tax advantages.
A couple of quarters go by, your investment pays off as promised, and you’re a happy camper. Then tax season rolls around and instead of the familiar Form 1099, a new form called a Schedule K-1 (Form 1065) shows up in the mail, with numerous boxes labeled with different types of income and deductions. What’s going on? What are you supposed to do with this?
For those who are new to them, the first thing to understand is that an MLP is simply a publicly traded partnership (PTP). (Not all PTPs are MLPs, however; a number of PTPs are simply commodity pools.) By buying shares, technically referred to as “units,” in an MLP, you become a partner (or a “unitholder”) in this very large partnership. As a partner rather than a corporate shareholder, you enter a whole new world of taxation. Partnership taxation is what makes MLPs a tax-advantaged investment, but it also makes them more complex than many other investments.
As a partnership, an MLP is not considered to be a separate entity for tax purposes the way a corporation is, but rather is a pass-through entity—sort of an agglomeration of all its partners. An MLP does not pay corporate tax; instead, all the things that go into calculating tax—income, deductions, gain, losses and credits—are divided up among the unitholders as if they had earned the income themselves. Part III of the K-1 tells you your total share of each of these items.
What about the distributions? Do you pay tax on them as well? You might think so, since the quarterly cash distributions look a lot like dividends; however, MLP distributions are not dividends, but quite a different creature. When you fill out your tax return, the only thing you have to worry about paying tax on is your share of net partnership income. The portion of the distribution that is equal to net income is covered by that tax payment.
Based on the book “Buffettology,” this spreadsheet quantitatively applies Warren Buffett’s valuation techniques.
Freeware, shareware, demos and fully running software programs that are designed to make you a smarter and more informed investor.
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Guide to Direct Purchase and Dividend Reinvestment Plans. Purchase stock without commissions through company-sponsored DRP plans and often at below-market prices. [More…]