< Back to IRS

Giovanni Rossi

Can I pay for partnership business expenses personally and deduct them on my taxes?

I run a small business with my 50/50 partner, and we're butting heads on an expense decision. When we first launched, I threw together a basic website myself to get us online. Now we're growing and I really want to invest in a professional website. I've gotten quotes around $6.5k for what we need, but my partner is completely against spending that much from the business account. Here's what I'm considering: I also own another successful business with a different partner where I pay quarterly estimated taxes. This quarter I was planning to pay about $33k in estimated taxes. I'm wondering if I could just pay $26.5k instead, and use that $6.5k to personally pay for the website for the first business. My question is - when tax time comes around, can I deduct that $6.5k as a business expense on my personal taxes even though I paid for it outside the partnership? The expense is legitimately for the business, but my partner doesn't want to use partnership funds. Does this approach make sense from a tax perspective? Or am I creating a mess for myself?

What you're describing is called a capital contribution, and it's actually pretty common in partnerships. If you personally pay for a legitimate business expense, you can increase your basis in the partnership by that amount. However, you shouldn't deduct it on your personal return directly. Instead, the expense should still be recorded on the partnership's books, and you should document that you personally contributed the funds. This preserves the business expense while recognizing your additional investment. The partnership's tax return (Form 1065) would show the expense, and your K-1 would reflect your increased basis. This approach keeps everything clean from an accounting perspective and avoids potential issues if you're ever audited. I'd suggest discussing this with your partner first though - while you can make additional capital contributions, major decisions like website development typically require partner agreement according to most partnership agreements.

0 coins

But what happens tax-wise if the partner doesn't want to record it as a partnership expense? Is there any way to deduct it personally if the partnership refuses to recognize it?

0 coins

The partnership should still record the expense even if your partner initially disagrees. It's a legitimate business expense benefiting the partnership. If properly documented as your additional capital contribution, it doesn't require your partner to contribute matching funds. If for some reason the partnership absolutely refuses to record it, you might be able to deduct it as an unreimbursed partnership expense on Schedule E of your personal return, but this approach has significant limitations after the Tax Cuts and Jobs Act and is much more likely to trigger IRS scrutiny. The capital contribution approach is cleaner and less likely to cause issues.

0 coins

I went through something similar with my business partner last year - we couldn't agree on marketing expenses. I found this service called taxr.ai (https://taxr.ai) that really helped clarify the situation. They analyzed my partnership agreement and tax documents, then gave me specific guidance on how to handle personal contributions to partnership expenses. They explained exactly how to document everything properly so I could increase my capital contribution without creating problems with my partner or the IRS. Their analysis showed me the right way to record everything on both the partnership and personal returns.

0 coins

How does taxr.ai work exactly? Do they review your actual partnership agreement or just give general advice? I'm not sure how comfortable I am uploading all my business docs to some website.

0 coins

I'm skeptical about these online services. Did they actually help resolve the conflict with your partner or just give you tax advice? The real issue here seems to be the disagreement between partners more than the tax treatment.

0 coins

They do review your actual documents - you upload your partnership agreement, past returns, and any other relevant paperwork. Their AI analyzes the specific language in your documents to give personalized advice, not just generic information. Everything is encrypted and secure. They gave me both tax advice and specific language I could use with my partner to frame the contribution properly. In my case, the conflict was resolved when I showed my partner the analysis that proved I wasn't trying to take over but just wanted to invest more in our growth while protecting both our interests.

0 coins

I tried taxr.ai after seeing it mentioned here and it was super helpful for my partnership situation! I uploaded our operating agreement and last year's return and got detailed advice specific to our situation. They showed me how to properly document personal payments for partnership expenses and explained exactly what forms needed what information. The best part was they highlighted specific clauses in our partnership agreement that addressed capital contributions, which I honestly had forgotten about. Saved me from a potential fight with my partner because I was able to show him exactly how it works according to our own agreement. Now we have a clear process for handling situations where one of us wants to invest more than the other.

0 coins

If you're having trouble getting your partner to agree on business expenses, you might also have issues with communication. When I had similar problems with my business partner, we couldn't even get on the same page about calling the IRS for guidance. I found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes instead of waiting for hours. They have a video showing how it works here: https://youtu.be/_kiP6q8DX5c I was able to get official clarification from the IRS about partnership capital contributions and how they should be documented. Having that official guidance really helped when discussing with my partner.

0 coins

How does this even work? The IRS never answers their phones. I've literally tried calling multiple times and just gave up. Are you saying this service somehow jumps the queue?

0 coins

This sounds like BS honestly. If there was a way to skip the IRS phone queue, everyone would be using it. I've waited 3+ hours multiple times. No way some service can magically get you through unless they're doing something sketchy.

0 coins

It's not queue jumping or anything sketchy. The service basically calls the IRS for you and waits on hold, then calls you when they get a human on the line. You just take the call and start talking to the IRS agent directly. It doesn't give you special access - it just handles the hold time for you so you don't have to sit there listening to the hold music for hours. I was skeptical too until I tried it. I got actual IRS confirmation about how to handle partnership capital contributions, which was exactly what I needed for my situation.

0 coins

I was totally wrong about Claimyr. After being skeptical, I tried it yesterday because I was desperate to resolve a partnership tax issue before our filing deadline. It actually worked exactly as described - they called the IRS, waited on hold, then connected me once they had an agent. Got through to someone in the business tax department in about 20 minutes (which is a miracle compared to my previous attempts). The agent confirmed exactly how to handle partner-paid expenses and the proper documentation needed. Completely worth it just to avoid the hold time frustration. I've wasted entire days in the past trying to get through.

0 coins

One thing nobody's mentioned - you need to carefully consider if this website expense is a capital expenditure that should be depreciated rather than fully expensed in the current year. Depending on the nature of the website development, the IRS might consider it a capital asset with a useful life of several years. If that's the case, neither you nor the partnership can deduct the full amount immediately. You'd need to capitalize the cost and depreciate it over time (typically 3-5 years for website development).

0 coins

Do you know what the threshold is for having to capitalize versus expense? I thought there was some rule where small businesses could deduct a certain amount of capital expenses immediately?

0 coins

You're thinking of Section 179 expensing, which would likely apply here. Under current rules, businesses can elect to deduct up to $1,160,000 of qualifying equipment purchases rather than depreciating them (for 2023 tax year, slightly higher for 2024). A website would typically qualify for this treatment, so the partnership could indeed expense it immediately rather than capitalizing and depreciating it. But the key point remains - this should still be recorded as a partnership expense with you making a capital contribution, not as a personal expense on your individual return.

0 coins

Have you considered just taking a distribution from your other business to pay for this, rather than reducing your estimated tax payments? Underpaying your estimated taxes could result in penalties and interest if you end up owing more than you paid in quarterly payments.

0 coins

This is a good point. Estimated tax penalties can add up. If your income is similar to last year, you might be able to use the safe harbor rule (paying 100% or 110% of last year's tax depending on your income level), but reducing your payments increases your risk.

0 coins

IRS AI

Expert Assistant
Secure

Powered by Claimyr AI

T
I
+
20,095 users helped today