MLP taxes and K-1s are an ongoing popular topic for just about every MLP discussion board as investors new to them each year discover the often unexpected details involved. Fortunately there is good information from folks like nemaha and pshonore among others. It is possibly worth mentioning that with many MLPs like the oil and gas ones, you can also be responsible for paying multiple state taxes if you go over state income thresholds where your MLP has income.
As far as tax treatment for MLPs held in IRAs - the brokerages do not handle this is a consistent manner - you will want to research this. Fidelity considers UBTI (and paying if you go over the $1000 threshold) entirely your problem, while other brokerages (Vanguard is one) provide assistance and will calculate and pay this from your account - you will have to make sure you have cash in the account to cover the tax.
Do your due diligence on all of this. And I hope that someone will correct me if I have misstated anything.
Outstanding post, nemaha! Kudos to you for sharing your expertise in a complicated arena. I'd add that anyone with an MLP in their portfolio had better be using a good tax software or a professional to handle their 1040's or they'll be deducting the medical expense of treating their new perforated ulcer! lol
On the K-1 timing, I also hold CODI (walkin' bowlegged from it the last few weeks, though)and they post K-1's via website in mid-Feb each year. Hopefully UAN will be on the earlier side as well. Personally, I've structured my W-2 w/h to deposit enough to bring my non-MLP taxes due to $0 and then I don't overly sweat the K-1 delay as I know that's the only money I need to deposit with Uncle BigBrother by 4/15.
Masoy this "bogus income" you're telling me will the tax gonna exceed the dividend/distribution i will be receiving? I don't mind paying the tax as long as remain positive after paying all tax due.
oh, by the way, K-1's are usually available to taxpayer's around the 15th of Marchat the eariliest, and could be later if the partnership puts their tax return on extension. this delays the completion of your income tax return.
Yes, you should get a k-1 covering the period you owned the stock. the k-1 will report your share of various items of income and loss for the period you owned the stock. since your interest in the activity (the partnership) is a passive activity (publ1cally traded partnership) you generally will only be able to currently deduct any passive activity losses from passive activity income of the PTP (publically traded partnership). PTP's losses cannot offset passive activity income from other passive activities (such as another PTP or a real estate rental). any losses that cannot be currently deducted are suspended and carried forward from year-to-year till there is passive activity income or you dispose of the investment. if you have net losses, then eventually the losses and the distributions will reduce your basis in the investment. your basis can go to zero, but not below zero. if you are still getting distributions when basis is zero, you then will start to report distributions as a capital gain on Schedule D of your Form 1040. Whenever you sell, more than likely some of the gain will be reportable as ordinary income, and the remainder as capital gain. if the partnership has interest bearing accounts or dividends from stocks the partnership owns, your share of these items is passed through seperately and retain their character. this means if the partnership earns tax-exempt interest, your share of the tax-exempt interest is still tax-exempt interest to you, but it does increase your basis in the stock. it is your responsiblity to keep track of basis and suspended losses. they are also "at risk" rules that sometimes come into play. as you can see, it gets complicated. this is the reason i charge $25 to $100 for each K-1 in a tax return. many accountants charge much more than this. holding a PTP in a IRA or other qualified retirement plan, is a whole different tax problem due to unrelated business income, which basically means if you have $1,000 or more unrelated business income , a tax return is to filed by the IRA and tax paid on the income from inside the IRA. you can about imagine the compliance with this. in my experience very few will comply.
Man, you are truly a good citizen as you are willing to pay your taxes without reservation.
I assume you are a cash taxpayer. As such you are willing to pay taxes on income you received.
As an MLP investor you will be constipated if not stressed out as you will taxes for an income you did not recieve, in short, you can refer it as a bogus income. Each year you will recieve a K-1 form showing you your partnership share of incomes. Of all the taxable incomes, the only income you received is the Capital Gain. Plus, of course, the distribution which is tax exempt.
Yes, but the subject is complicated and not suited for short answers on a message board like this. If you want to understand it, you should start by reading one of the MLP primers like this one for example