Unreimbursed Business Expenses

Partners have a limited ability to deduct out-of-pocket expenses which they have paid on behalf of the partnership. Unreimbursed partner expenses can be deducted on Schedule E of the partner’s individual income return, but only if the partnership has a written policy which specifically allows partners to pay business expenses from their personal funds. A partner cannot deduct any expenses which would have been repaid by the partnership if the partner had requested a reimbursement. Also, a partner cannot deduct un

reimbursed business expenses if the partnership has a written policy which specifically disallows any partners to pay for partnership’s expenses with personal funds. Shareholders of S-Corporations cannot deduct unreimbursed expenses on their individual Schedule E, because they are treated as employees of the corporation. Generally, a shareholder cannot personally deduct any expenses which are not remitted to the corporation for reimbursement. However, if an S-Corp shareholder has expenses which were remitted to the corporation, but cannot be reimbursed by the corporation, then the shareholder can deduct.

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