A client has been self employed as a physician for many years claiming his income and expenses on a Schedule C. In 2014 he decided to form a Partnership with 4 other Doctors. He wants to continue taking his expenses on his Schedule C although the income will be shown on the K1 Partnership return. He said that the other Dr's are taking their expenses through their Corporations. It is my opinion that this cannot be done as the expenses need to be taken on form 1065 page 2 Schedule E. Am I correct?
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This doesn't sound like a 4-doctor medical practice partnership, in which all the income and all the expenses flow through the business. Rather it sounds like an "association" of four doctors for the purpose of sharing office expenses, overhead and maybe some salaries and other common expenses. If so, then your doctor client still has his own business, and he pays for his share of common expenses by making payments to the expense-sharing partnership.
If that's what it is, then it's pretty straightforward. His income and all his expenses still get reported on his own Schedule C, and his payments to the partnership are just one of his expenses ... albeit one of the biggest ones. The new partnership's income would consist of the payments received from the four member doctors, and its expenses would be the ones it pays on everyone's behalf.
If I'm all wet, and this isn't what's happening, then you have a bit of a messy situation. I wouldn't prepare a Schedule C with no income on it, just expenses, so a deduction for UPEs, on Schedule E, would be about the only option you have left. Caution: In order for a UPE deduction to be valid, the partnership agreement must provide that certain expenses, if incurred by the partners, are not reimbursable by the partnership.Roland Slugg
"I do what I can." -
Partnership and Schedule C
The Doctors are running only their income through the Partnership return. The other Doctors are accounting for their expenses through their Corps. and my client wants to run his expenses through a Schedule C. I tried explaining to him that he needs to have a Partnership agreement stating that their expenses should be taken on the Partnership return Sch E part 2. What a mess!Comment
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What a mess!
Consider describing to your doctor/client the shared expense arrangement I described above. If you can arrange a meeting with all four doctors, that would be even better. What they're proposing to do is pretty much unworkable.Roland Slugg
"I do what I can."Comment
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