Follow-up responses:
- Your reply indicates "member B could have paid the expense as well".
- Based on that statement, I recommend member B reimburse member A for $5,000 (assuming 50/50).
- Then you make an adjustment to the books and records to indicate that both member A and B made a $5,000 capital contribution. This way the equity stays in balance to the ownership.
- Then allocate the loss and any other separately stated items 50/50 (once again, based on item 2 assumption).
- Handling this in any other manner opens up potential questions and issues should you win the audit lottery.
- Finally, this is not handled on Schedule C as noted in your reply. Your K-1 items will flow through to Schedule E.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
