In most cases, partners aren't allowed to deduct unreimbursed partnership expenses (UPE) on their personal tax returns.
However, if your partnership agreement requires that you cover certain partnership expenses out-of-pocket, you may be able to deduct ordinary and necessary unreimbursed expenses if they qualify as Section 162 trade or business expenses. This gets reported on Schedule E.
When entering your UPE, don't include expenses that can be itemized on Schedule A, nor passive activity expenses if you are required to file Form 8582.
Where to enter unreimbursed partnership expenses
UPE is entered in the K-1 interview:
- With your return open, search for K-1 and then click the "jump-to" link in the search results.
- Proceed through the K-1 path for partnerships and LLCs, answering the questions as you go.
- When you get to the second Describe the Partnership screen, check the first box ("I am required to pay supplemental business expenses...for which I am not reimbursed").
- Note: There is another Describe the Partnership screen that comes before this one, but that's not the one you want. You'll want the screen that comes after you've entered info from the boxes on your K-1.
- Answer Yes on the Unreimbursed Partnership Expenses screen and proceed.