SEHI expense in 1065

[user17721252444]

If I put my self-paid SEHI expenses in a Schedule C, TT clearly limits the deduction based upon profit/loss.

If I enter the same expenses on my 1065, it flows thru without being limited based upon profit/loss. I get a larger deduction to my personal tax return, but I believe it to be incorrect, because it is not limited by the small profit in my family LLC.

What am I doing wrong?

How do I enter the SEHI expenses in my partnership tax return to ensure it is limited by profit/loss??

Thanks.

[Mike9241]

from 1065 instructions for 2025

line 19

Don’t include amounts paid during the tax year for insurance
that constitutes medical care for a partner, a partner’s spouse, a
partner’s dependents, or a partner’s children under age 27 who
aren’t dependents. Instead, include these amounts on line 10 as
guaranteed payments on the applicable line of Schedule K,
line 4, and the applicable line of box 4 of Schedule K-1, of each
partner on whose behalf the amounts were paid. Also report
these amounts on Schedule K, line 13e, and in box 13 of
Schedule K-1, using code M, of each partner on whose behalf
the amounts were paid

[user17721252444]

Thanks for your suggestion: I did not find the line numbers you discussed on the step-by-step data entry screens, so I suspect you would have me go directly to the K-1 forms and enter/override the data in those lines.

I am considering an alternate approach: On 1040 screens where the LLC's K-1 information is entered, after I check the box for "required to pay expenses ..." I could enter all of the health insurance costs and all of the LLC's expenses I pay directly. This leaves only a couple of expenses remaining on the LLC's 1065. 

By entering all expenses directly into the personal 1040, K-1 input sections, TT appropriately limits the Health Insurance deduction based upon profits from the 1065 K-1s.

It appears the tax implications are virtually identical with the two approaches.

What would you suggest: 1) all expenses, including healthcare,  entered on the LLC's 1065 per your guidance; 2) all expenses, including healthcare, included on the 1040, K-1, expense and healthcare data entry sections?

[PatriciaV]

Is your LLC owned by more than one person? If so, you cannot report the LLC expenses directly on your Form 1040 return because they should be shared with the other owners. Reporting income received and expenses paid by the LLC is the purpose of the 1065 return.

Note that Mike9241's quote is from the IRS Instructions for Form 1065 Schedule K, not for individual Schedule K-1s. If correctly entered, guaranteed payments flow from the 1065 to the K-1s. These payments can be entered in TurboTax Business under Federal Taxes >> Deductions >> Compensation and Benefits >> Guaranteed Payments.

[user17721252444]

Thanks for your guidance.

Our LLC is owned 100% by my wife & I, so, we could split the expenses and enter them following the "... do you pay expenses that were not reimbursed?" box for each of the LLC K-1s flowed down to our joint 1040. Our charter does require us to pay expenses that are not reimbursed.

I believed this approach would document these expenses on our Schedule E vs. the 1065.

I worried it might be inappropriate to enter expenses directly on the 1065 unless they were actually paid by, or reimbursed by, the LLC. I understood expenses by owners/members that were not reimbursed should be shown on the owner/member's Schedule E.

A confirmation of your recommendation would be appreciated & thanks again for your experience and wisdom😊

Paul

[ThomasM125]

Yes, you are correct. If you have unreimbursed company expenses paid by partners, they are deducted on the partner's personal tax return, on the second page of Schedule E.