Unreimbursed Partnership Expenses

For those of you with partnerships, there’s a subtle but important rule that I wanted to bring to your attention.

If you’re a partner and you’re used to claiming expenses related to the partnership on your personal return (business mileage and home office expenses are common, for example), the best solution is to have the partnership reimburse you for those expenses.

If not, you’re not allowed to take a deduction personally unless the partnership agreement or established partnership practice requires the individual partner to pay certain expenses personally. If this is the case for your partnership, I suggest having such a written policy in place. That will save you one potential headache in the event that your tax return is ever audited.

Note that the ability to claim unreimbursed partnership expenses (UPE) on your personal return does not apply to S-Corporations. The S-Corp must reimburse the shareholder for those kinds of expenses, and if not, they can’t be deducted directly on your 1040.

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