Partnership K-1 and partner expenses ?

[cientax]

An Accountant from a small suburb came to my office today and asked me to help him with preparing the 1040 of a partner. I have always refused to prepare returns of partners with a K-1 but went ahead and accepted it anyway. This guy also has never dealt with a partnership K-1 but he took a crack shot at preparing their 1040, ( it has not been filed yet).

He used the Sch-E for the ordinary income and entered it on page one of the Sch-E then deducted some expenses that the partner incurred while working for the partnership and deducted these expenses on the Sch-E page one reducing the ordinary income. I know that the ordinary income does not go on the front of the Sch-E and he also didn't enter anywhere on the return Guaranteed Payments. I know that these incomes are subject to SE tax and he calculated the SE tax on the NET of the ordinary income from the Sch-E.

My question is not whether the income is subject to SE tax but my question concerns the expenses that the partner incurred working for the partnership. He told me that the partnership did not deduct these expenses on the 1065.

Are these expenses such as auto, advertising, cleaning/maintenance,insurance, management fees, repairs, supplies, cell phone that the partner incurred outside the partnership deducted on the Sch-A? Or was the partner required to report these expenses to the partnership?

[lsowers]

You can deduct unreimbursed partner expenses on Sch E pg2. Just make sure they pass the smell test for deductibility.

[kcjenkins]

It depends on what the partnership agreement says, Cientax. If the partnership would reimburse him, then he can not deduct them. But often, partnerships agree that each partner will pay certain expenses themselves, and that the partnership will not reimburse them. In that case, you just add an extra column to the K-1 Input sheet, same name and EIN and enter the total that you determine to be deductible on line 19 W.

[michaelmars]

ON SCH e right below the k-1 entitiy as unreimbursed partner exp. the k-1 imput has a line for it and it flows properly or you can do a statement if you choose to itemize them.

[cientax]

Thaks guys, I knew you would come through!

[mcb39]

I have been doing partners" returns like this for years with unreimbursed expenses on page 2 Sch E; and have never had one not pass the "smell" test; whatever that is. It is quite common for partners' to pay some out of pocket expenses and not be reimbursed by the Partnership.