Form 1065 for two-member LLC - where to report each partner's business miles?

[theleeb]

Both partners have their own personal vehicle which is sometimes used for business. They have a main work location but have to purchase supplies sometimes on the way to the business location, or from the business location as well.

Other times, each partner delivers their services at a location other than their main place of business, e.g., without going to their main business location that day.

It seems that the miles incurred in both of those scenarios would be deductible?  If so, where would the business mileage deduction be entered on Form 1065?

[AmeliesUncle]

If the Partnership didn't pay for it, it doesn't go on the 1065.

Does the Partnership Agreement specifically state that the Partners must pay for those expenses?

[Mike9241]

1. Reimbursement Method (accountable plan):

   • If a partner uses their personal vehicle for business-related travel, they can submit a reimbursement request to the partnership.
   • The partnership would then reimburse the partner for the business mileage at the correct IRS rate.
   • This reimbursement is treated as an expense for the business. 

2. Deducting Expenses on Personal Return (he IRS states that using this method requires that the partnership allow it in the written partnership agreement otherwise no deduction is allowed on either the partnership or 1040s) .:

   • Alternatively, if the partnership agreement provides for it (, a partner can deduct the expenses related to their personal vehicle directly on their personal tax return. The deduction, if allowed, is taken through the unreimbursed partner expense section in the Turbotax KK-1. nothing about the vehicles is reported on the 1065
   • This method involves tracking all relevant expenses (such as fuel, maintenance, and repairs) and claiming them as deductions.
   • However, this approach depends on the specific terms outlined in the partnership agreement.

[theleeb]

Thank you.  I will check the partnership agreement.

If  business-related mileage is not specifically identified in the partnership agreement, from your reply, it appears that Option 1 would apply? If so, is there a sample reimbursement request that is used for this purpose?  Could either of the two partnership issue the disbursement?  e.g., if Partner A incurred the mileage expense, would Partner B need to issue the reimbursement?

Lastly, where on the 1065 would this type of expense be reported?

Thanks.

[PatriciaV]

Yes, if the partnership agreement doesn't specifically state that a partner is required to pay partnership expenses without reimbursement, the partnership would need to establish an "accountable plan" for reimbursement. See the rules here: IRS Pub 463 Accountable Plans.

Under an Accountable Plan, the partner submits a reimbursement request to the partnership for which the expense was incurred. When the partnership pays the reimbursement, the cost is recorded as a Miscellaneous Expense. This appears on Form 1065 Line 21 with a custom description.

[theleeb]

Thanks for your helpful response.  I did check the "Operating Agreement" and there is a paragraph, "Reimbursement", that is very high-level in its content.  All it says is "The Company must reimburse the members for all direct out-of-pocket expenses incurred by them in managing the Company".  However, I do not see an Accountable ("Reimbursement Arrangement" in the case of partnerships?) Plan. 

I do not see a provision for allowing the partners to take the deduction directly on their Schedule E form.  Looks like I will need to let the partners know that any business-related expenses paid with personal funds incurred so far cannot be deducted nor reimbursed until the agreement is updated or a reimbursement plan is established.

Thanks again for your insights.