Discussion:Non Deductible Expenses 1065

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Discussion Forum Index --> Tax Questions --> Non Deductible Expenses 1065

JCAccounting (talk|edits) said:

24 January 2007
When doing monthly accounting for a partnership - should non deductible expenses, such as penalties, go to partner draw? When completing the 1065 does it then go to non-deductible expenses? Also what about personal expenses the partnership paid (partner wrote check out of partnership checking account for personal items). Is this a nondeductible expense for the partnership or a draw for the partner which would affect basis.

Glmpllc (talk|edits) said:

24 January 2007
Non tax deductible expenses (i.e. govt penalties) are still generally a book expense, so I would reflect it as an M-1 item, not a partner draw. Personal expenses generally are considered a partner draw, not a deduction to the partnership. Both non deductible expenses and partner draws reduce a partner's basis under IRC 705.

Deback (talk|edits) said:

January 24, 2007
I would record non-deductible penalties (as well as personal expenses) as draws. Why create more work for yourself, when the result is the same?

Glmpllc (talk|edits) said:

24 January 2007
The capital accounts are the "books" of the partnership. Partnership aggreements generally require liquidation in accordance with capital accounts. It's very important to maintain those books so that upon liquidation each partner get's the correct amount. If it is actually more work, then the client should be educated on the necessity and billed accordingly.

I think running a non-deductible expense through as a draw may be more work than just treating it as an M-1 item. To properly reflect it's impact on the capital accounts you have to allocate it amongst each partner. Maybe it's "six of one, half a dozen of another." The only way to know it's been done right, though, is to not take shortcuts.

...my two cents

Death&Taxes (talk|edits) said:

24 January 2007
In some cases it is more work: For Buy-Sell insurance, which to me is a M-1 item since the partnership will receive the proceeds, to charge it to draw you would have to know how much each partner's premium was.

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