My wife opened up a dance studio with another business partner in 2021 and bought half of the equipment needed to open the dance studio. Her business partner already owned enough equipment to bring half of the equipment needed. How should these expenses be accounted for? What form should I be using on our taxes? Not sure if they would normally be accounted for on a K1, but these expenses were not accounted for on that document.
The K-1 section of TurboTax includes a place to enter unreimbursed partnership expenses.
However this sounds like a contribution of capital to the partnership in exchange for a partnership interest. In that case, the purchases would not be treated as an expense but would be part of the capital account.
Upon the sale or dissolution of the partnership, taxable gain or loss of the partnership interest would be computed much like the sale of stock.
Got it. So I don't need to do anything for my 2021 taxes, correct? Would this be different if both my wife and her business partner paid for the equipment equally to start the business before the LLC was formed? If so, then I don't know why I wouldn't deduct these expenses this year since technically the other business partner just bought the equipment needed a few years earlier.
Correct, you will not do anything with those expenses specifically because your wife invested that equipment (regardless of how it was purchased) into the business. This transaction created her basis in the partnership which is really just the value of her portion of ownership of the business. Her K-1 may include a basis reconciliation that will show the value of the property as her beginning number then her share of net income will add to it as the business continues to operate.
Each year she will get her K-1 and you just need to enter that information in for your personal tax return.