Answers · Partnerships · Form 1065
Can a Partnership Deduct Payments to Partners?
Qualifying guaranteed payments or non-partner-capacity payments can be deductible if the underlying expense is deductible; distributions are not.
How it works
The rule, and what it turns on.
Capitalizable services remain capitalizable even when paid to a partner.
Example
$50,000 management guaranteed payment can be deductible; $50,000 profit distribution is not.
Common mistakes
What we see go wrong, and what we do instead.
- Deducting draws.
A better approach
- Review §707 characterization before year-end.
Authority
Where this comes from, so you can check it.
IRC §707(c); Treas. Reg. §1.707-1(c); IRS Publication 541 and Form 1065 instructions. IRC §162(a) (ordinary and necessary trade or business expenses); IRC §262 (personal expenses generally nondeductible).
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
Have this question about your own books?
Thirty minutes with someone who does this every day, and you will know where you stand. No obligation.