Where your unreimbursed business expenses are reported depends on the type of partner you are. If you are a member of a partnership who is paid as a legal partner and receives a K-1, you would report your expenses on the Schedule E form instead of on Schedule A. If you are an employee who is called a partner, your unreimbursed partner expenses would be treated as unreimbursed employee expenses and you would report them along with your other itemized deductions on Schedule A for tax years up until 2017. However, because of recent reforms, claiming unreimbursed employee expenses for the 2018 tax year and beyond is a different story.
Taxpayers can report their unreimbursed business expenses on the Schedule A form for tax years 2017 and prior. But, for tax years beginning with 2018, you are unable to write off these expenses on the Schedule A due to new tax reforms.
Reporting the UPE on Schedule E
When you are a partner in a business, you will receive an informational return from the partnership called a K-1. The K-1 contains your share of the partnership's profits or losses and is reported on the Schedule E form. If you have unreimbursed expenses from a partnership in which you are an active participant, the Internal Revenue Service requires you to report them in their own line in column "h" of Line 28 of the Schedule E form – separate from the entry corresponding to your K-1. The IRS also requires you to label them "UPE" for unreimbursed partnership expenses and provides Schedule E instructions to assist you.
Reporting on Schedule C
Another possibility could be that you work as a contractor for a business but are still called a partner. You might even call yourself a partner in a business that you own by yourself. If you fall into this category and are a contractor, you should receive a 1099 from the business that reports what you are paid. If you're self-employed, you might get 1099s from clients. The IRS allows you to write off all of your business expenses against your income on the Schedule C.
Reporting on Schedule A
If you are an employee and receive a W-2 for your work instead of a 1099, the IRS allows you to write off unreimbursed expenses from work as a part of the itemized deductions you report on Schedule A – up until and including the 2017 tax year. They fall under the general class of miscellaneous deductions, and your ability to write them off is limited by how much you earn. You probably will also have to attach Form 2106 to detail what you spent. It's worth noting, however, due to recent tax reforms beginning with the 2018 tax year, taxpayers will be unable to write off unreimbursed employee expenses as well as other miscellaneous deductions on Schedule A.
Schedule A Drawbacks
While your accountant is the best source of advice on where and how to report your deductions and unreimbursed partner expenses, Schedule A is generally an inferior place to claim them. It allows you to only deduct unreimbursed expenses and other miscellaneous deductions that exceed 2 percent of your adjusted gross income. Also, if your income falls above a certain threshold – $156,900 or more for the 2017 tax year depending on your filing status – the IRS might limit your deductions. Expenses on Schedule C and E, on the other hand, generally aren't limited as long as they fit the IRS' broad definition of being reasonable and they are being used to offset income you earned.
- IRS: Partnerships
- IRS: About Schedule A (Form 1040), Itemized Deductions
- IRS: About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)
- IRS: About Schedule E (Form 1040), Supplemental Income and Loss
- IRS: Topic Number 501 - Should I Itemize?
- H&R Block: 3 Changes to Itemized Deductions Under Tax Reform Bill
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.