If you use your personal bank card to purchase a business asset, can you still count that as a business expense?

[danielle-51]

 If you are an owner of a business, and you purchase lumber or tools for your business with your personal debit card, and not your business debit card, or even make a purchase with cash, can that be a business expense "as is", or does your business need to reimburse you first from your business account? Some items have been items that would have to be depreciated.

[Anonymous_]

What type of business structure do you have? 

If you are a sole proprietor or a single-member LLC (without an election to be treated as a corporation for federal income tax purposes), it really makes no difference as to which type of account you use to purchase an asset for your business or pay for a service.

[danielle-51]

It is a multi-member LLC, taxed as a partnership...a family business.

[Anonymous_]

The partnership agreement should have a provision to reimburse you for expenses you pay on behalf of the partnership. 

[Anonymous_]

You may be able to deduct your out-of-pocket costs as unreimbursed partnership expenses provided you were required to pay the expenses personally under the partnership agreement.

[danielle-51]

Because it is family, the only reason reimbursement would be sought, would be in order for it to be correct on our tax return as a business expense. If it can be legitimately claimed as an expense without reimbursement, that would be the preference, but we want it to be exactly right for our tax return.

[Anonymous_ · Accepted solution]

Except the partnership is a separate entity for that purpose and needs to actually pay the expense in order to properly deduct it on its 1065.

[danielle-51]

Thank you, that is the answer I needed...clear and direct.

[Mike9241 · Accepted solution]

if you want it to be a partnership expense or capital expenditure it must either pay for it or reimburse you.  if it is only your expense for the business it could be deductible on your 1040 after entering the k-1 and using the section for unreimbursed partnership expenses. 

[danielle-51]

When you say "it could" be deductible, why would it not be? I don't want to make a mistake on the tax return.

There have been 8-10 thousand dollars spent on things like tools and equipment. At the time of purchase, it was without thinking about how it would affect our tax return. It would be good to be able to personally deduct it on the k-1 if allowed, since it sounds like it cannot count as a business expense. Reimbursement is not an option at this point.

[MarilynG1]

You could deduct the entire cost of a new item purchased 100% for business, or you could choose to depreciate the item. You will see the options you have when you enter your asset in TurboTax under Business Expenses.

[danielle-51]

So are you saying this actually can count as a business expense even though it was paid for out of personal funds by this partner? We are an LLC, taxed as a partnership. The business cannot reimburse these expenses at this time. I was under the impression that would be the only way it could be counted as a legitimate business expense. What does seem a bit confusing is that we are all owners, a family business, and it would seem like we would have the right to buy something for the good of the business, and count that as an expense on our 1065, but I thought we were wrong in thinking that based on other responses I have received.

[Vanessa A · Accepted solution]

Yes, if you used your personal credit card to pay for lumber for your LLC partnership, you can take a deduction for the expense.  

You can do it a couple of ways.  

1. You can treat it as an unreimbursed partnership expense.  To do this take the following steps:

•  you will walk through the steps of entering your Schedule K-1 that you receive from the Partnership and select I am required to pay supplemental business expenses on behalf of this partnership/LLC for which I am not reimbursed. The K-1 entries can be found under the Personal Income section in the Home and Business version under Business Investment and Estate/Trust Income or using Jump To or search in Premier or the online version. 
• on the next page select Yes to does your partnership agreement require you to pay any expenses out of your own pocket.
• continue through until you get to Miscellaneous Supplemental Expenses.  Enter building materials or whatever the lumber was used for and the amount, then click continue. 

2. You can treat it as an increase in your capital contributions to the partnership. Then have the partnership take the deduction. This would be done while filling out the 1065 and Schedule K that will be distributed to the partners. 

The first method may be easier and you personally would receive the entire deduction for the lumber instead of splitting it among all partners.