For a tiny Limited Partnership, trading futures only, how should the fund expenses be allocated to the partners? Example, Partnership made $40k in profit Incurred $5k in management fees paid to the general partner for managing the fund and turning a decent profit for the year Joe partner, who has put up 50% of the partnership capital (but does no trading, has his own full time non-trading job), gets a K-1 at then end of the year. Would he a) Pay 23% blended rate of tax on his share of profit ($20K profit), and take a writeoff on his share of expenses ($2.5k expenses), subject to 2% AGI limitation? OR b) The K-1 would report his profit as $20k - 2.5K = $17.5K and he would pay 23% on $17.5k? The general partner, of course is responsible for paying tax on his $5k fees (this would be his "earned income" in tax lingo). Any help/replies would be highly appreciated. Thanks & happy new year!