K-1 expenses from LLC partnership and their reimbursements on my personal taxes - question

[DrSherman]

Hi,

My wife and mother-in-law have a LLC, which is expected to issue a K-1 form (from TurboTax Business). The LLC's operating agreement states that my wife will pay for business expenses if there is a loss in the business (which happened since the business is still new).

My wife's car has been used 80% of the time for business, and we had maintenance expenses/oil change/etc expenses in 2020.

My question is about where I should report those expenses, as I am confused about doing double-dipping if I report them in the business tax return, and report that I paid them in our personal return.

1 - Report car expenses in TurboTax Business, LLC generates a K-1 and I enter the loss in the K-1 in our personal tax return, but I don't report the expenses there

2 - Similar to (1), but I report the car expenses in our personal return as we paid for that expense

3 - Do not report car expenses in TurboTax Business, LLC generates a K-1, loss is entered in our personal return, and car expenses from the business are entered in the personal taxes.

Thanks!

[JeffreyR77]

You report the expenses related to your wife's automobile use in the business in TurboTax Business, Federal Taxes, Deductions.

The TurboTax interview will step you through entering your vehicle expenses.  You will also be able to enter information to calculate depreciation for your vehicle.

You will then be able to decide whether using the standard mileage rate of 57.5 cents a mile for 2020,

You will have generated the numbers you will need to know for using if you choose to report your expenses on your personal return and NOT on the business.

There is no Option 2 as you describe.  If the expenses are entered in TurboTax Business, the loss will post to your K1 and it will pass-through to your K1.

You have already verified the LLC Operating Agreement states you are required to pay business expenses on behalf of the partnership for which you are not reimbursed. 
 

You can then deduct them as Unreimbursed Partnership Expenses in TurboTax Home & Business.  In the search box in the top left, type K1 and then click on the Jump to link. Update your K1 from your partnership. When you reach the Choose the Type of Partner screen, verify you have selected the Disregarded Entity box.

Continue through the interview until you reach the Describe the Partnership screen. 

Verify the first box I am required to pay supplemental business expenses on behalf of this partnership/LLC for which I am not reimbursed.

The next screen asks to verify the Partnership Agreement requires you to pay expenses out of your own pocket. 

Only If the Agreement states you are required to pay expenses out of your own pocket are expenses on behalf of this entity deductible.

The TurboTax interview will then allow you to enter various types of business expenses to reduce the amount of income passing from the partnership subject to tax on your individual return.

Ensure when you decide which way to handle the expenses, you remove any entries from TurboTax Business that may be duplicative based on the option you have selected.  

Also, as your wife contributes more capital to pay expenses, her capital account should reflect increases in her contribution to the partnership.

[DrSherman]

Thanks for the very detailed response, JeffreyR77. Just for clarification, I am using TurboTax Premier for my personal taxes, but the screens you provided seem to be the same.

I will remove from TurboTax Business the LLC expenses I am required to pay, generate a K-1 with a loss that will not include them, and will add the expenses as Unreimbursed Partnership Expenses in my Personal Tax. Does this look correct? This way I would not be double dipping deductions, if I got your response right.

Thanks.

[gloriah5200]

Yes, that sounds correct