ize or depreciate money that is invested in an asset. Pass-through entities, like MLPs, allow those tax deductions to pass through to the investor.

You may think that a company isn’t making any money if they don’t have to pay taxes. But there is a difference between cash flow and profit.

It’s tax time again! This is the time that we anxiously watch our mailboxes for the arrival of the documents we need to complete our income taxes. For most, their interest income is reported on a 1099. Other investments, such as partnerships, generate a K-1. Many think a K-1 complicates your taxes and should be avoided. I disagree. Read on to find out why.

There is a whole class of investments that has been avoided by income-oriented investors for many years. They are called Master Limited Partnerships, or MLPs. Owning them is more involved than owning a common stock, but the increased cash-flow makes it well worth it.

While most stock-based investments are issued by companies organized as corporations, MLPs are referred to as pass-through entities. Without going into too much detail, the main difference is that dividends from corporations are taxed at the corporate level and then at the investor level. MLP cash-flows are only taxed once, at the investor level.

You don’t have to pay taxes each year on the cash-flows generated by MLPs because they are typically considered return of principal. That’s because the tax code allows companies to amortize or depreciate money that is invested in an asset. Pass-through entities, like MLPs, allow those tax deductions to pass through to the investor.

You may think that a company isn’t making any money if they don’t have to pay taxes. But there is a difference between cash flow and profit. I

xes and should be avoided. I disagree. Read on to find out why.

There is a whole class of investments that has been avoided by income-oriented investors for many years. They are called Master Limited Partnerships, or MLPs. Owning them is more involved than owning a common stock, but the increased cash-flow makes it well worth it.

While most stock-based investments are issued by companies organized as corporations, MLPs are referred to as pass-through entities. Without going into too much detail, the main difference is that dividends from corporations are taxed at the corporate level and then at the investor level. MLP cash-flows are only taxed once, at the investor level.

You don’t have to pay taxes each year on the cash-flows generated by MLPs because they are typically considered return of principal. That’s because the tax code allows companies to amortize or depreciate money that is invested in an asset. Pass-through entities, like MLPs, allow those tax deductions to pass through to the investor.

You may think that a company isn’t making any money if they don’t have to pay taxes. But there is a difference between cash flow and profit.

ncreased cash-flow makes it well worth it.

While most stock-based investments are issued by companies organized as corporations, MLPs are referred to as pass-through entities. Without going into too much detail, the main difference is that dividends from corporations are taxed at the corporate level and then at the investor level. MLP cash-flows are only taxed once, at the investor level.

You don’t have to pay taxes each year on the cash-flows generated by MLPs because they are typically considered return of principal. That’s because the tax code allows companies to amortize or depreciate money that is invested in an asset. Pass-through entities, like MLPs, allow those tax deductions to pass through to the investor.

You may think that a company isn’t making any money if they don’t have to pay taxes. But there is a difference between cash flow and profit.

orate level and then at the investor level. MLP cash-flows are only taxed once, at the investor level.

You don’t have to pay taxes each year on the cash-flows generated by MLPs because they are typically considered return of principal. That’s because the tax code allows companies to amortize or depreciate money that is invested in an asset. Pass-through entities, like MLPs, allow those tax deductions to pass through to the investor.

You may think that a company isn’t making any money if they don’t have to pay taxes. But there is a difference between cash flow and profit.

ize or depreciate money that is invested in an asset. Pass-through entities, like MLPs, allow those tax deductions to pass through to the investor.

You may think that a company isn’t making any money if they don’t have to pay taxes. But there is a difference between cash flow and profit. If a company invests money into a drilling rig, for example, it can amortize that expense over many years. So each year that write-off is viewed by the IRS as an expense.

The amount deducted for tax purposes ‘shields’ the equivalent amount of income from taxes. If a company has $1,000,000 left over each year after paying all its bills and has $1,000,000 in amortization, then it doesn’t owe any taxes.

When a payment is considered return of principal, the amount you have invested for tax purposes (your cost basis) decreases by the same amount. When you eventually sell the investment you will have to pay capital gains on the difference between the sales price and your cost basis.

So, in effect, you are pushing the taxes down the road to when you sell the investment. But since capital gains are currently taxed at a lower tax rate, you end up paying less overall in taxes than you would if it were considered interest instead.

Even those in lower tax brackets can benefit from MLPs, because their yield can be much higher than other investments. If you want to maximize the level of income you can earn, MLPs may be just the thing for a portion of yo