The movie The Greatest Showman was not "The Greatest Show"... it was a lukewarm show. A medium show. An okay show. Plus, the most important tax break in the public markets.

Have you ever been in a car with your child, listening to the same song repeatedly?

And you just can’t take it anymore?

Now I know what my body and head do when it’s coursing through my brain.

My wife loves the movie The Greatest Showman, starring Hugh Jackman.

Me? Not so much. It was a medium show. A lukewarm show.

It was an “Okay” show.

Well, now the soundtrack is following me after a few years off.

So, I’m filibustering…
 

I have no future in show business…

But I do as an energy investor.

So, let’s continue where we left off yesterday on tax advantages.

How about in the ultimate geopolitical hedge… all with a nice tax benefit to boot?

Always Money in the Midstream

Let’s examine specific assets that can offer double-digit annualized returns while enhancing tax efficiency.

One of the most attractive sectors for achieving this goal is the Midstream segment of the oil and gas industry.

Now, I know what you're thinking. "Oil and gas? In this economy?"

But hear me out. While everyone's freaking out about Chinese demand (or lack thereof), the midstream sector is sitting pretty, churning out income like a well-oiled machine. See what I did there?

I’ll be home all week… (Amelia’s still sick, which is why we were driving around in the first place.)

Midstream companies move oil, gas, and refined products from production sites (upstream) to refineries and chemical manufacturers (downstream). They’re the unsung heroes of the energy world, providing pipelines, storage, and other “boring-but-essential” services that keep our lights on and our cars running.

The best part? Unlike their upstream cousins (the ones who actually drill for oil), midstream companies aren't on a roller coaster ride every time oil prices hiccup.

It's like being the house in Vegas - steady income.

The Tax Advantage of the Midstream

Now, let's talk about Master Limited Partnerships, or MLPs. These bad boys are like the Swiss Army knives of the investment world - versatile, efficient, and oh-so-tax-friendly. Let’s start with the pros of the midstream business.

1. Tax-Free Distributions: MLPs “pass through” their income directly to investors, avoiding corporate taxes like the plague. Most of what you get is classified as "return of capital," which is fancy-speak for "We'll tax you later, maybe."

2. Lower Tax Rates: When structured right, MLP distributions get taxed at the long-term capital gains rate. That's 15% or 20% for most of us instead of the top 37% ordinary income rate that makes your wallet cry. But remember, you might be married and living below the 0% threshold for these distributions.

3. Tax Deferral: A big chunk of those distributions? Tax-deferred until the investment is sold. This can push the tax liability into future years when the investor’s income (and thus tax rate) may be lower. This makes MLPs an effective tool for high-net-worth individuals seeking to manage their tax burdens over time.

Okay: The K-1 Form: The Fly in the Ointment

Before you go all in on MLPs, let me introduce you to the one annoyance: the K-1 form. This little paper is like a friend who always complicates simple plans.

Here's why K-1s are the party poopers of the investment world:

1. They show up fashionably late during tax season. The good news is that it’s easy to access it online. You just need to know what company you’re own and your social security number. Just be proactive about it. It’s not that bad.

2. They might make you file taxes in multiple states. Because who doesn't want to file taxes in North Dakota, right? But again, this comes down to proactively doing your research ahead of time.

3. Don’t bother trying to hold an MLP in an IRA. Seriously, it defeats the purpose of a tax-advantaged account.

Navigating the MLP Minefield

So, how do we reap the benefits without stepping on a tax landmine?

Here are some pro tips:

1. Get a tax guru. Seriously, find someone who speaks K-1 fluently.

2. Consider MLP funds, closed-end funds, or ETFs. It's like getting the flavor without the calories—you get exposure without the K-1 headache. We’ll explore this tomorrow.

3. Keep an eye on your cost basis.

So, What is our favorite?

Well, let's name-drop, shall we?

Enterprise Products Partners (EPD) is my favorite name in the sector. You can get access to a free report right here.

When you’re done reading it, you’ll realize that a K-1 is worth the time.

Stay positive.

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