Partnership return

[kabbabkkg]

I just need a little support, I guess.  I have a client filing their first Partnership return and the Gross Receipts are 270,000.  After entering all the equipment for depreciation ( Work trucks lawn equipment etc) and all the expenses for doing business they have a loss of 101,000.  Is that unusual for a first year company filing a partnership.  I have checked and rechecked and this is what I come up with.  Just wondering if anyone out there has encountered this before. 

[abctax55 · Accepted solution]

Is the big loss being generated by bonus (or maybe §179) depreciation?

Free tip -  If so, evaluate if taking so much depreciation is the best for the partners for THIS year, and future years. 

[JRC]

I would weigh the value of QBI and Future Advantage of depreciation.

[jeffmcpa2010]

Abctax has a great point.

You probably need a partners meeting to find out where they want to end up tax wise for the year, and discuss implications of writing everything off this year.

I would strongly encourage you to provide some good information, and explain the choices and consequences AND MAKE THE PARTNERS MAKE THE DECISION.

You make the decision, and 5 years from now someone will claim it was the wrong decision.

And Document, Document, Document the decision and the process.

[qbteachmt]

Who owns the trucks and if there are loans, who is on the debt?

[kabbabkkg]

No 179 depreciation that is just with the regular depreciation 

[kabbabkkg]

There are two pickup trucks a 2016 that was used then traded for a 2021 owned by one of the partners.   The other truck such as dump trucks, lift trucks, mowers, mulches, utility trailers etc.  some are financed

[shf1957]

I know what caused this, I think.   You might have checked the box re: the Economic Stimulus.. which is GOOD if they need to write it off in one year.   I would suggest that you uncheck that box on some of the items and take them over the 3-5-7 yrs so they have those deductions since they probably will still have those expenses (payments).  If they take the expenses all in this year, next year will be a killer.  They would still have the payments but not the credits/depreciation deduction.  In nice words, they will LOVE you this year but NEXT year they WON'T.   LOL   Hope this helps.

[kabbabkkg]

Thank you I will check on that and to be honest I don’t know if there will be a next year the partners are not exactly seeing eye to eye.  But that is another story. Thanks again

[kabbabkkg]

I went in and unchecked the Economic stimulus but I had to say yes or no and that made the loss more.  So for all the equipment under 10,000 I 179 the depreciation and I got the loss down to 97000.  That will give them each about a 48000 loss on their personal returns.  I am going to check everything else before I give the results.

Thanks for your help

[abctax55]

If you §179'd and that decreased the loss... then the return should now be showing §179 carryover.  Be sure to discuss that, and the ramifications, with your client

[qbteachmt]

"There are two pickup trucks a 2016 that was used then traded for a 2021 owned by one of the partners."

Personally owned vehicles would not be paid for nor depreciated nor operated by the LLC as if the LLC owns them. The LLC needs to be the Owner. That is titled property.

If you and I form a partnership, and I contribute a truck to the partnership, I cannot also be the owner of that truck. If I want to use my personal vehicle for business, the LLC needs to have the provision that I can get reimbursed for the operating costs or there will be mileage allowance reporting.

[kabbabkkg]

What if there is no provision for the use of a personal truck. And all the other equipment and trucks are leased to the company and this is a GeneralPartnership

[qbteachmt]

"What if there is no provision for the use of a personal truck."

Is that how I worded it? Let me review a few things to know and/or research.

I can lease my truck to the LLC. That means I get a 1099-Misc Box 1 for the Lease income to me and the LLC gets to list their expense, and I don't use the truck for Personal any longer.

https://smallbusiness.chron.com/need-issue-1099-leased-business-equipment-64287.html

Or, it's still my personal truck and I am allowed (and it is safe, insured, etc) to use it for LLC work. Not just for Vehicle, but in general, the partnership documents (LLC) need specifically to include if a partner is expected to incur business costs personally, and if they can be Reimbursed for incurring business expenses paid personally. This is not specific to the Vehicle operation or Lease discussion.This is part of LLC business expense, the loss of nonemployee expense deduction, and the TCJA of 2017.

For purposes of reimbursement, there would be receipts, such as printer paper. It's impossible to reimburse for part of a gas fillup, and you cannot prorate how much of which tire got used for personal or business, etc; so the IRS has the provision of Mileage allowance. That covers all operating costs. A partner or an employee using their own vehicle for work would turn in a Mileage Report under what is called An Accountable Plan, to be repaid per IRS mileage rates for the business use. For an employee this is not taxable through payroll as fringe benefit, unless you pay a rate other than the IRS rate. For a partner, this is not allowed unless it is provided for in the LLC documents. That is not a company policy issue; it's in Law. And that is assuming this person was required to use their own vehicle and expected to pay their own costs:

https://www.jdsupra.com/legalnews/are-your-unreimbursed-partner-s-9980145/

If I decide to use my own truck because it is nicer than the one the LLC provides, that would be subject to negotiation, or I would be required to "suck it up" in that case.

The LLC cannot depreciate something they don't own. They cannot pay to operate or repair a personal truck owned by another, unless they are Leasing it with that exclusive right, the same as if the LLC leased it from Ford or Dodge or GM. Well, unless they damage someone else's property, such as, the company Truck backs into an employee's truck. The company repairs both trucks. That's happened to my truck.