If you paid ordinary and necessary business expenses out of your own pocket on behalf of a partnership and were not reimbursed, you may be able to deduct those costs on your individual tax return. These are commonly called unreimbursed partnership expenses (UPE).
According to IRS guidance, you can deduct unreimbursed partnership expenses on Schedule E (Form 1040) if you were required to pay those expenses under the partnership agreement. This deduction is generally reported as part of your partnership income and may reduce the income subject to self-employment tax.
How to Enter Unreimbursed Partnership Expenses in the Program
- Go to Federal.
- Select Income (Select My Forms).
- Choose Less Common Income.
- Select K-1 Earnings.
- Choose Schedule K-1 (Form 1065). Choose Add or Edit.
- Complete the Unreimbursed Partner Expenses Related to Self-Employment Earnings section and enter your eligible expenses.
What Expenses Qualify?
- Ordinary and necessary for the partnership's business.
- Paid by you personally.
- Not reimbursed by the partnership.
- Required under the partnership agreement or established partnership policy.
Common examples may include business travel, supplies, professional dues, and other partnership-related expenses that you were obligated to pay yourself.
Be sure to keep documentation showing:
- The amount of each expense.
- The business purpose of the expense.
- Proof that you paid the expense personally.
- Evidence that the partnership did not reimburse you.