Individual partners are often required to incur business expenses that will not be reimbursed by the partnership (such as travel and entertainment expenses). Partners are generally not entitled to deduct partnership expenses on their individual income tax returns. However, if the partnership’s agreement or practice requires a partner to pay certain partnership expenses from his or her own funds, with no right to reimbursement from the partnership, the partner is entitled to deduct, in arriving at AGI (on Schedule E), these as trade or business expenses on his or her personal return. These Schedule E deductions should also generally be deducted in computing net self-employment income on Schedule SE.
Strategy: Partners should make explicit the “requirement” that partners incur partnership expenses without right of reimbursement, either as a provision of their partnership agreement or through a written policy of the partnership.
Please contact Martini, Iosue & Akpovi by phone at (818) 789-1179 if you have any questions or would like more information.