The Unreimbursed Partnership Expense Trap for Side Hustlers

This episode of The Tax Strategy Podcast uncovers a little-known IRS rule that disallows unreimbursed partnership expenses — costs you pay out of pocket for a partnership or multi-member LLC that you can't deduct as a business expense and can't claim as an itemized deduction either. Lucas and Luna walk through a real-world example: a freelance graphic designer and a web developer who form a 50-50 partnership to launch a subscription design service. The designer spends $8,000 on software licenses and a dedicated laptop before the venture generates revenue, expecting to deduct those costs against partnership income. But the IRS treats those payments as capital contributions, not deductible expenses, and the partnership's tax return misses the write-off entirely. The episode explains the UPE trap, why it catches so many small business owners in 2026, and the two workarounds: an accountable plan or a partnership agreement amendment that requires reimbursement. Specific, actionable, and timely for anyone running a side hustle with a co-founder. #UnreimbursedPartnershipExpenses #PartnershipTax #SideHustleTax #LLCTax #SmallBusinessDeductions #AccountablePlan #PartnershipAgreement #IRSRules #TaxStrategy #SelfEmploymentTax #BusinessExpenses #TaxPlanning #MultiMemberLLC #Finance #BusinessPodcast #FexingoBusiness #TaxStrategyPodcast #Podcast Keep every episode free: buymeacoffee.com/fexingo