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partnership return and section 179


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new to partnerships... filing a 1065 and took section 179 deduction. is it correct that it isn't deducted from the partnership expenses but goes on k-1 to partner. problem is it doesn't show up on part 2 of schedule E as a deduction on the partners personal federal retrun?

also, ohio llc taxed as a partnership...two general partners...none limited...but and Ohio? which not sure how general partners can have limited liability. I taxed all guaranteed payments with SE tax. can and LLC can they take losses with no basis? not passive...its a pure service company and minimal capital contributed a bit of $ for supplies.

also, all taxes they pay (sales tax etc) can be deducted from the partnership return as an expense correct?

thanks so much for advice. my main issue is making sure they get the deduction for the section 179 expense, its not showing up on partnership expenses on 1065. it is on line 12 of k-1 but on personal federal return I don't see a deduction on part 2 of E??? why? the K-1 doesn't transfer it..

thanks kindly

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THANKS FOR REPLYING.....I ENTERED IT MYSELF...IT SHOWS ON THE K-1 AS SECTION 179 BUT DOESNT TRANSFER. IT IS A PARTNER DEDUCTION RIGHT AND SHOULD SHOW UP AS A DEDUCTION IN PART 2 OF THE E CORRECT? I ONLY HAVE THE GROSS NONPASSIVE INCOME AND THEN I HAD SOME UNREIMBURSED PARTNERSHIP MILEAGE. THE SECTION 179 DOESN'T COME OFF PARTNERSHIP RETURN CORRECT AS A DEDUCTION IT IS A K-1 PARTNER LEVEL ITEM???

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Basis is your problem. They would have to have basis to take the 179 deduction. If no basis it will carryover. Would the partnership still have a loss if you hadn't taken the 179?

If you are using ATX, the program will produce a very nice basis worksheet with the 1065. It used to be located as one of the tabs on the Sch K-1 screens. Look at that, and if you've input everything correctly and the partners really don't have basis, you should see that it will be showing that the 179 isn't allowed. The individual returns have the basis and at-risk limitation inputs that are needed so that the program properly handles the items flowing from the K-1 onto the personal returns.

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No basis no losses. As Judy said it will carry over. Let me add one more twist to this. Do these partner's have a capital account? You really need to track their outside and inside basis. If the partners have a prior year return and preferrably 2012 that may help you a lot. If done right, it should show basis if any. Interesting thought on the 179 possibly triggering the loss. If that is the case, and based on other factors, I would reconsider taking the full amount.

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thank you both very helpful...new to partnerships as you can see :-) yes it showed up as a carryover but what confused me is that the city returned allowed the section 179. so that confused me but yes a carryover shows up. I use drake software and wondering why local allowed it??thoughts?

this is a service oriented basis small partnership started in 2013- in infancy they earned $14,000,,,took out $11,000 (I labeled as guaranteed payments) the rest expenses. Put in $65 each to buy supplies so not sure there will ever be basis???? basis can only be increased by contributions etc correct??? what will increase there basis if they take everything out they earn? they take out what they earn and pay expenses. this year a small income that did transfer to K-1.

but in following years....so even though general partners they can't take ordinary losses on personal return. it's not passive income. always have to have basis?

it did allow me to take mileage against their guaranteed payments as a deduction on part 2 of E...as an unreimbursed partnership expense. was that correct???

took this on as a small return to get my feet wet but not sure how they will ever have basis. thanks for any help.

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Also, if you are going to deduct sales tax, etc; be sure that those amounts are included in gross income. Yes, the unreimbursed partnership expenses should show up on the Sch E as a minus. Do they each have other forms of income such as W2 income? I don't see how they could start a business without any basis; even if they had to borrow the money to begin.

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Are you sure there is no basis? This is why I'm asking-

If the partnership has income and the partners draw virtual all funds out as guaranteed payments or draws, then what resources were used to purchase the equipment that you are trying to take the sec 179 deduction on? Was this paid by cash from the biz or financed with the biz as the borrower? Or was it paid for with partners' personal funds or a personal credit card?

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its a cleaning business and they bought two vacuum cleaners..that's it. $400-$600. I didn't want to depreciate so sec 179'd them. Rest of expenses were initially

paid put of pocket (cleaning supplies) and I took those as deductions on the 1065. Can't increase their basis for the supplies can I as I took the expenses on 1065? they had some profit this year and that's how they paid sales taxes and are now using the little bit left over to buy supplies etc. they paid a registration free to get the LLC and that was it personally. they haven't not made any other contributions the only thing is supplies and they now pay for them out of what isn't a draw initially was personal funds but I took off as expenses on 1065

thanks regarding the sales tax. makes sense they collect from customers and then just pass on. I won't deduct the sales tax as I didn't put in gross income.

re: the guaranteed payments. they decide what they want to take out but I called it guaranteed payments (subject to se) cant be distributions as no basis

this year they made $14,000...$11,000 took out in GP. About $2000 left in an account right now. and most expenses of about $2,000 they paid for personally initially on 1065 but told them to start using the $2000 in account to buy supplies

I appreciate the help I won't let this return leave til correct. expenses may be throwing me. I put everything they spent on supplies personally and out of the little bit of profit as expenses on the 1065. so they showed a small profit after GP can't use that as basis the personal part as I deducted the expense right?

so combination of both personal AND biz on supplies and cleaners...but I took all as expenses.ok to use the personal expenses as basis---but then I couldn't claim as expenses on 1065 right?? thanks for any guidance. I should stick to personal returns!

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Should I just take the expenses they paid for personally at beginning and add to basis... but then I wouldn't deduct on 1065 correct. only deduct expenses paid out of profit on 1065 which is what they are doing now.

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to summarize my unfortunate rambling(obviously confused about expense treatment) any $ a partner pays out of their pocket (not revenue or sales) for supplies, equipment or other expenses (phone bill, meals, etc) increases their basis and then the partnership takes deductions for the same expenses correct? everything they pay out of pocket is contributed capital and then is an expense on 1065

if expenses are paid out of revenue then no increase to partner basis

thanks so much re: help on sec 179 I understand the needing of basis to take sec 179.

the expenses they paid out of pocket were/are confusing me....hope above correct.

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If they purchased supplies and never got reimbursed yes it can add to capital. However, you cannot expense it on the 1065 as it didn't cost the partnership anything. The supplies were simply a donation by the partners. As has been suggested, look at the partner basis worksheet that will give you information as to what adds and subtracts from both tax basis (outside basis) and capital (Inside basis). No intentions of being offensive but this sounds like you really need some help here. Partnership returns are not easy.

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If they purchased supplies and never got reimbursed yes it can add to capital. However, you cannot expense it on the 1065 as it didn't cost the partnership anything. The supplies were simply a donation by the partners. As has been suggested, look at the partner basis worksheet that will give you information as to what adds and subtracts from both tax basis (outside basis) and capital (Inside basis). No intentions of being offensive but this sounds like you really need some help here. Partnership returns are not easy.

If you were posting a set of books for the supplies paid for personally and used in the business as a capital contribution, what would be your offsetting debit then? I would debit an expense account and deduct those expenses. Am I wrong on this?

If Terry is correct, then what is the benefit of showing this as a contribution of capital? Wouldn't the partners be better off showing this as an unreimb'd partnership expense on their personal returns?

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thanks Terry. I agree tough re: basis and I want to get it correct as first return. thanks for a couple of you hanging in with me... Not much to this...a few expenses. . I have worked through most items except making sure I have their basis correct and the expenses.

bottom line:

they each paid for out of pocket (cash) for a few supplies and office expenses totally about $600 each out of pocket. And each bought a vacuum cleaner. so each initially contributed about $800. so that is cash and contributed property so I'd think would increase their basis.

the key is now can I took those same expenses and 179 expense on the 1065 Under your theory Terry you could not add to basis and then expense. that is where I was going with my initial post by saying that I was expensing these items and they had no basis. But then others said how can not have any basis?

the rest is a bit of income they drew as salaries. I certainly don't want to double count as basis and expenses but seems to be conflicting theories any help appreciated. I have researched on my own but no explanation if the expenses they paid out of pocket can be added to basis and then in turn expensed on the 1065.

sounds like the 2 vacuum cleaners are inside basis (assest) and sec 179 ok

the next thing is the supplies and office expense $600 if I add to their inside basis can they also be expensed on the 1065? thanks all!!!

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the next thing is the supplies and office expense $600 if I add to their OUTSIDE basis can they also be expensed on the 1065? thanks all!!!

I understand the outside and inside basis...inside is assets in biz, outside cash, property contributed etc.

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Why are you so dead set on expensing the assets? Also, if they put the money and or property in and withdraw it the same year, it won't add to their capital accounts nor be able to be used as UPE. If they plan on continuing this business, why don't they want to grow some capital? It just seems to me that we are missing something critical here.

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>>>>If you were posting a set of books for the supplies paid for personally and used in the business as a capital contribution, what would be your offsetting debit then? I would debit an expense account and deduct those expenses. Am I wrong on this? <<<<

>>>>If Terry is correct, then what is the benefit of showing this as a contribution of capital? Wouldn't the partners be better off showing this as an unreimb'd partnership expense on their personal returns?<<<<

I would debit the "Supplies Account" and credit the "Capital Account". Agree that once the supplies are used, Debit "Supplies Expense" and credit the "Supplies" asset account. I took the statement as trying to do both transactions at the same time as using the debit supplies expense as an offset to the capital contribution. I do think there are some very important missing pieces of information. So, with this said, Judy you were not wrong when we look at it as we both were. It was the initial statement that threw me off. My two entries are assuming this business is an accrual and not a cash business.

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I'm not dead set on expensing. Just not sure 6 months of windex and cleaning linens, paper towels etc. is contributed capital. I am trying to understand if I expense those out of pocket items on the 1065 if it's also added to their outside basis. Nothing was added as capital to this business. They bought some supplies and started cleaning houses. They made $14,000 and the partners personally paid for some supplies. They withdrew most profits as salaries and the rest is sitting in account to pay for sales taxes. Supplies paid from own pocket. Was only trying to reconcile the proper treatment for expenses and basis.

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My main concern was adding the out of initial pocket supplies expense to basis (giving them basis if not truly basis) and then expensing those same supply items on 1065. They did use all the supplies they contributed out of pocket in year 1 as expenses.

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The supplies contributed can definitely be added to the partner's basis and then expensed as they are used. Because you state this is a cash basis tax payer, then the remaining supplies would be expensed. Expense accounts must be zero at the end of the year. There is a basis worksheet that may help you determine what actually adds to both the outside and inside basis in the link below.

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&ved=0CCYQFjAA&url=http%3A%2F%2Fwww.aicpa.org%2Finterestareas%2Ftax%2Fresources%2Fpartnerships%2Ftoolsandaids%2Fdownloadabledocuments%2Fbasis-checklist-2013-partner-basis-schedule-and-basis-adjustment-checklist-final.doc&ei=5AYVU4j3I8P00wHn54GACQ&usg=AFQjCNEh2bI5z1_Kl5P_mMI9bFOigPi8AA&bvm=bv.62286460,d.dmQ

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Terry D I appreciate the follow-up and kindness. This is a simple partnership where the two partners bought supplies from own $ and they were all used during year. my confusion was ensuring I wasn't adding something to basis that wasn't "property" per the basis worksheet....and then in turn expensing it as a partnership expense in that same year. supplies were all used this year and cash basis partnership.

I appreciate the guidance. This is the first year so I wanted to get the basis correct. They took most profit as payments for services and there wasn't many other expenses except the supplies so they showed a bit of profit so that also will be added to the inside basis of each partner.

they each contributed a bit of cash, the supplies (property), the sec $179 deduction (on k-1) and now will have the income to add to basis. I did the inside basis worksheet. thanks again for the follow-up.

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