Generally, the partnership pays the business expenses incurred by a partner, however the partnership agreement may specify that the partner is to pay "ordinary and necessary" expenses. In that case, the partner may deduct them on Schedule E as unreimbursed partnership expenses.
Note: Don't enter unreimbursed partnership expenses in Schedule E unless the partnership agreement specifies the partner is to pay them.
In TaxSlayer Pro, where unreimbursed partner expenses are entered depends on whether they are related to passive or nonpassive activity.
Nonpassive activity
From the Main Menu of the tax return (Form 1040) select:
- Income
- Rents, Royalties, Entities (Sch E, K1, 4835, 8582)
- K-1 Input - Select the partnership K-1 from the list if it was already added, or select New and enter the partnership information.
- 14A. Net Earnings (Loss) from Self-Employment
- Unreimbursed Partner Expenses - Enter the expenses in the appropriate menu line:
- Business Use of Home Worksheet - Publication 587 contains two worksheets, a long worksheet and a simplified worksheet. The taxpayer can use either. See the publication if you have any questions about an entry.
- Business Mileage - Enter the business miles. The allowed expense calculates based on the standard mileage rate(s).
- Unreimbursed Partner Expenses - Enter any expense that doesn't fall in the previous two categories. Note that if the taxpayer has entered mileage they cannot also deduct other vehicle-related expenses.
- If the partnership K-1 includes Section 199A information in Box 20Z, be sure to reduce the Section 199A income by the amount of the unreimbursed partnership expenses.
Passive Activity and Form 8582 isn't required
Unreimbursed partnership expenses from passive activity can be deducted if Form 8582 isn't required for this activity. To deduct these expenses, from the Main Menu of the tax return (Form 1040) select:
- Income
- Rents, Royalties, Entities (Sch E, K1, 4835, 8582)
- K-1 Input - Select New and enter the same partnership information as entered for the Schedule K-1 except enter "UPE" for the partnership name.
- 2. Net Income/Loss from Rental Real Estate Activities - Enter the amount of unreimbursed expenses as a negative number in the "Nonactive" field.
Additional Information:
IRS: Instructions for Schedule E