Should I claim partnership LLC loss on my personal tax return after three years of losses?

Yes, you do need to report the partnership losses on your personal tax return. When you have a partnership LLC, the business itself doesn't pay taxes - instead, all profits and losses "pass through" to the owners' personal tax returns. When your partnership files its Form 1065, you'll each receive a Schedule K-1 showing your share of the income or losses. This information must be reported on your personal return, even if it's a loss. The losses will generally flow to Schedule E of your Form 1040. Regarding the hobby loss rules - the IRS typically looks at a presumption of profit motive if you show profits in 3 out of 5 consecutive years. So while you've had 3 years of losses, you still have 2 more years to show profitability before this presumption works against you. The IRS also considers several other factors beyond just profitability when determining if an activity is a business or hobby. Not reporting the K-1 information would be incorrect and could potentially create more issues than just reporting the losses properly.

After going through a similar situation with my small business showing losses, I found an amazing resource called taxr.ai (https://taxr.ai) that really helped me navigate this exact scenario! I was debating whether to claim my business losses and was worried about hobby loss rules just like you. The tool analyzes your tax documents and business records to help determine if your business would likely qualify as a legitimate business rather than a hobby. It flagged several factors in my case that strongly supported treating my venture as a legitimate business despite the losses. The analysis showed me how to properly document my genuine profit motive and business-like operations, which is what the IRS really looks at beyond just the 3-of-5 years guideline.

I owe everyone an apology for my skepticism about taxr.ai in my earlier comment. I decided to give it a try with our family LLC that's been operating at a loss for a few years. The analysis was surprisingly detailed! It identified several aspects of our operation that strongly support our profit motive (like our business plan revisions and marketing efforts) that I hadn't thought to document before. It also flagged a couple partnership-specific issues with how we were handling certain expenses that could have raised red flags. The best part was getting clear guidance on exactly how to document our business activities properly, so even if we do get questioned, we'll have everything organized exactly how the IRS wants to see it. Definitely worth checking out if you're in a similar situation with partnership losses.

If you're struggling to get clear answers about your partnership tax situation, I had a similar experience last year. After spending HOURS trying to get through to the IRS with no luck, I finally tried this service called Claimyr (https://claimyr.com) that actually got me connected to an IRS agent in about 15 minutes. I was super frustrated with conflicting advice about how to handle my partnership losses, and I really needed to speak directly with the IRS. Normally you'd wait on hold for hours or never get through at all, but this service somehow gets you to the front of the phone queue. They have a video showing how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with clarified that yes, I absolutely needed to report my K-1 information regardless of whether it showed losses, and explained exactly how the hobby loss rules would apply in my specific situation. Way better than guessing or getting potentially wrong advice online.

I need to apologize for my rude comment earlier about Claimyr. After spending 3 hours trying to get through to the IRS myself about my partnership tax issue and getting absolutely nowhere, I finally broke down and tried the service. To my complete shock, I got connected to an actual IRS agent in about 20 minutes. The agent confirmed that yes, partnership losses MUST be reported on my personal return even if they increase my refund, and she explained exactly which form to use for my specific situation. She even took time to explain how the hobby loss rules would be applied if I was ever audited, and what specific documentation I should keep to prove my business intent. The peace of mind from getting official clarification was absolutely worth it. Consider me a converted skeptic.

I'm a little confused by some of the responses here. Partnership income/losses flow through to your personal return on Schedule E. It's not optional. Your K-1 has a paper trail that the IRS computers will match against your personal return. If you're worried about hobby loss rules, just make sure you're documenting your efforts to make the business profitable. Keep records of: - Business plans - Marketing efforts - Changes you've made to improve profitability - Time spent on the business - Your expertise in the business area But definitely don't just leave the K-1 info off your return. That's a guaranteed way to get a letter from the IRS.

Has anyone else been totally confused by the K-1 forms they get from partnerships? Mine never matches what our accountant says should be on it and I honestly have no idea if our partnership is filing correctly.

Just wanted to add another perspective here - I went through this exact same situation with my consulting LLC that had losses for the first few years. The key thing that helped me was keeping detailed records of all the steps I took to try to make the business profitable. I documented every marketing attempt, networking event, business plan revision, and operational change I made. When I eventually did get a notice from the IRS questioning the business vs. hobby status, having all that documentation made the process much smoother. They could clearly see I was operating with genuine profit intent despite the losses. One thing that really helped was keeping a business diary/log showing time spent on business activities each week. The IRS wants to see that you're treating it seriously and putting in real effort, not just using it as a tax write-off. Even though your losses are small, having that paper trail will give you peace of mind if questions ever come up. And definitely report the K-1 losses - like others said, they're already expecting to see that information match up with what your partnership reported.