We pay rent to one partner. I assume that appears only as a guaranteed payment and NOT a rent expense?

[Classichondaman]

The payment is for inventory storage.  Don't want to subtract this expense twice, so I assume it goes as a guaranteed payment and not as rent expense.  Correct?

[RichardG · Accepted solution]

You are correct in wanting to avoid claiming the same expense twice.  But the more accurate approach is to record the payment as a rent expense, and not a guaranteed payment.  The IRS explains:

For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. These transactions include the following

Performing services for, or transferring property to, a partnership if:

1. There is a related allocation and distribution to a partner; and

2. The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner.

Guaranteed payments are typically for services or capital related to the partnership business.  Put another way, if it's an expense you have just as easily incurred with a third party, it's more like an expense and less like a guaranteed payment.