Accavallo & Company, LLC

Navigating Partner Business Expenses: Guidelines and Tax Implications

It’s common for partners to cover expenses related to their partnership’s business operations, particularly in service-oriented partnerships like architecture or law firms. These expenses might include entertaining clients, transportation for meetings, professional publications, continuing education, or home office costs. But how are these expenses treated for tax purposes? Let’s break it down.

Reimbursable Expenses: Partners can deduct expenses on Schedule E of Form 1040 if they’re the type expected to be covered by the partner without reimbursement, as per the partnership agreement or firm policy. Conversely, if the partnership would have reimbursed the expense, it’s not deductible.

For instance, if you’re a partner in an architecture firm and spend $4,500 on client meals, which the firm doesn’t reimburse according to the partnership agreement, you can deduct $2,250 (50% of $4,500) on Schedule E.

However, if the firm would have reimbursed you for these expenses, they’re not deductible. To avoid confusion, it’s advisable to have a written firm policy outlining reimbursable expenses.

Home Office Deductions: Partners can also deduct expenses related to a home office used exclusively for partnership business, subject to normal deduction limits. These deductions are reported on Schedule E. If the home office qualifies as a principal place of business, commuting mileage to client sites or the partnership’s official office counts as business mileage.

To qualify as a principal place of business, the partner must conduct most income-earning activities there or use it for administrative and management tasks without substantial use of another fixed location.

In Summary: Partners should submit reimbursable business expenses according to the partnership agreement or policy. Expenses not reimbursed can be deducted, provided they meet IRS criteria. It’s essential for partnerships to establish clear written policies on reimbursable expenses, including home office costs if applicable. This guidance applies to LLC members treated as partners for tax purposes.

If your business needs help navigating partner expenses, please don’t hesitate to reach out to us at Accavallo & Company for expert guidance.

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Sherri Fisher is a Tax Manager at Accavallo & Company, LLC.  Sherri has longstanding expertise in Trust and Estate Taxation, Eldercare, and Estate planning. Sherri appreciates the relationships she has built with estate planning attorneys and advisors, to provide a team approach to assisting her clients. Sherri also has seasoned experience in business and individual taxation and is partial to assisting start-ups in developing overall accounting and operating plans.

Prior to joining Accavallo & Company, LLC, Sherri was a manager in a large firm, servicing high net worth trust clients, business, and personal clients. She was also a Partner in a large bookkeeping firm, which specialized in cloud accounting systems for regional and national companies. Sherri led a team in assisting clients to organize their accounting systems.  She is a graduate of Florida Atlantic University with a B.S. degree in Accounting.    

Sherri’s experience includes working with companies and organizations in a variety of industries including:

  • Investment Trusts

  • DAPT and Family Investment Partnerships

  • Estate and Probate Administration

  • E-Commerce

  • Manufacturing

  • Construction

  • Real Estate Investment

  • Marketing and Service-based industries

In addition to her professional accomplishments, Sherri is an Intuit Advanced Pro Advisor, Intuit Future Firm Advisory Board member, member of the Valley WIN Network, and proudly served as past Connecticut Public School liaison for the Yale Tommy Fund for Childhood Cancer. Sherri enjoys time with her family, Cleveland sports, thrifting and gardening.