PSX will soon launch an IPO for a 'Master Limited Partnership' (see article below). Many are not familiar with the tax advantages of mlp's, but they may be the most tax advantageous investment on the market, especially for senior citizen investors.
MLP's generally pay out almost all of their net income in dividends, so they generally pay much higher dividends than stocks. And, for tax purposes, these divvys aren't counted as income, instead they are counted as a 'non-taxable return of capital', a reduction in the cost basis of your investment.
Not to be macabre, but the mlp investment vehicle could mean that elderly investors end up paying no taxes on their dividend payouts, none at all, if they die before their investment cost basis is reduced to zero. The time period it takes for an mlp to reduce the cost basis to zero is between 13 and 15 years. So, if an investor buys the mlp at, let's say, 65 years of age, then chances are that he/she will die before the cost basis is reduced to zero; many years of tax free dividends. But the neat thing is that the heirs will inherit the mlp investment, tax-free, and they can turn around and sell it tax-free.
An elderly investor can make higher dividend yeilds with mlps, than with stocks, and also avoid the 15% tax rate on dividend stocks. For more info on the tax advantages of MLPs, just google 'Tax Advantages of MLPs'. See article on PSX's MLP below:
Thu Dec 13, 2012 9:03am EST
(Reuters) - U.S. refining company Phillips 66 (PSX.N) expects 2013 capital spending to rise 6 percent to $3.7 billion and said it intends to contribute some of its oil and gas transportation assets to form a master limited partnership.
The company said it expects to raise about $300 million to $400 million in cash by selling a minority interest in the master limited partnership (MLP) in an initial public offering planned for the second half of 2013.
Greg Garland, Phillips 66's chief executive officer, told an investor meeting in New York that the MLP would was going to be "a very efficient vehicle" to accelerate the company's infrastructure growth.
Many energy companies have created the tax-efficient partnerships that rely on easy access to capital markets to fund growth. MLPs are typically made up of assets such as pipelines, gas processing plants or long-lived oil and gas fields that generate cash flows.
Assets held in Phillips 66's planned MLP may include certain product and crude pipelines and terminals, rail cars and other rail infrastructure, as well as natural gas liquids assets, the company said.
A registration statement for the offering is expected to be filed with regulators in the second quarter of 2013, Phillips 66 said in a statement.
The company's 2013 capital program is a 6 percent increase over the $3.5 billion earmarked for capital spending in 2012.
Phillips 66, which was spun off from ConocoPhillips (COP.N) earlier this year, is benefiting from access to cheaper crude oil from shale oil fields in North Dakota, Texas and Kansas.
The company expects to improve margins by controlling costs and serving the growing international refined products markets. Phillips 66 said it is targeting cost reductions and value capture in excess of $200 million before tax by the end of 2013.