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 ProWeb, where unreimbursed partner expenses are entered depends on whether they are related to passive or nonpassive activity.
Nonpassive Activity
From the Federal Section of the tax return select:
- Income
- Other Income
- K-1 Earnings
- Schedule K-1 Form 1065 - Select the existing K-1 if you've already entered it, or click + Add A Schedule K-1 to enter a new one. If this is an existing K-1, select Unreimbursed Partner Expenses Related to Self-Employment Earnings. If it's a new K-1, you'll arrive at the Unreimbursed Partner Expenses menu after entering all the other information on the K-1.
Unreimbursed Partner Expenses Related to Self-Employment Earnings menu
Make entries in this menu for a partnership K-1 that includes self-employment earnings in Box 14A. Three menu items are provided:
- Business Mileage - Enter the business miles. The allowed expense calculates based on the standard mileage rate(s).
- Carryback or carryover - Enter here any unreimbursed partnership expenses that were unallowed either in the prior year or carried back from the following year.
- Business use of home worksheet - ProWeb includes the long worksheet, not the simplified worksheet. Complete the worksheet as needed. See Publication 587 if you have any questions about an entry.
Adjusting Self-Employment Earnings and Section 199A Income
After entering the unreimbursed partnership expenses, print the return and examine Schedule E. On line 28, look for the entry for this partnership with the description beginning with "UPE", then note the amount in column (i). Return to the partnership K-1 and select the following:
-
Credit and Other Information
- 14A Net Earnings Loss from Self Employment - Reduce this amount by the amount of UPE.
- 20Z Section 199A Income - Reduce this amount by the amount of UPE.
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 Federal Section of the tax return select:
- Income
- Other Income
- K-1 Earnings
- Schedule K-1 Form 1065 - Click + Add A Schedule K-1 and enter the same partnership EIN and address information as entered for the Schedule K-1, but enter "UPE" for the partnership name.
- 2 Net Rental Real Estate Income (Loss) - Enter the amount of unreimbursed expenses as a negative number.
Adjusting Self-Employment Earnings and Section 199A Income
After entering the unreimbursed partnership expenses select Credit and Other Information and adjust two entries:
- 14A Net Earnings Loss from Self Employment - Reduce this amount by the amount of UPE.
- 20Z Section 199A Income - Reduce this amount by the amount of UPE.
Additional Information:
IRS: Instructions for Schedule E