Over the last several years partnerships that are publicly traded have become very popular.  The allure of the large “dividends” have made the investors flock to them.  There are a lot of these investment vehicles in the mid-stream oil and gas space like Enterprise Product Partners and Williams Partners.  There are several commodity-related investments that are set up as partnerships as well.  I am not in favor or against these investments.  However, if you are going to own them I would recommend that you do it in a retirement account like a 401K or IRA.

The problem with owning partnership investments in a taxable brokerage account is that you have to report ‘your share’ of the partnership activities on your personal tax return.  The partnership will provide you a form called a schedule K-1 in February or March of the following year which has information the IRS will be looking for on your personal return.  For many people, they have no idea what a “K-1” is.  This will complicate most people’s tax return preparation more than they realize.  The information on the K-1 may need to be reported on multiple schedules, some you probably did not know existed.  Oh, and just wait until you sell the investment.  You will have to figure the “basis” in your investment and it usually does not equal what you paid.

If you want to avoid all of the extra tax reporting just own the publicly traded partnership investments in retirement accounts.  These accounts are tax-deferred, or tax-free in the case of a Roth IRA, so there is nothing that ever needs reported.  It is best to keep life and your money as simple as possible.

Hope this information helps.

Dan Busenbark, CPA


Dan Busenbark
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