15 Tax Write-Offs for LLC
Running your own business is rewarding, but it can also come with a lot of expenses to grow your LLC. From advertising and promotions to startup expenses and legal fees, these costs can add up. Fortunately, there are easy ways to reduce these expenses and save your hard-earned profits, without having to reduce your essential business spending. Learning how to write off business expenses for LLCs can help you reduce your taxable income by claiming common business expenses as income tax deductions.
- LLC tax deductions can help you save money without cutting corners on business spending.
- Some allowable tax deductions for LLCs include self-employment taxes, legal fees, home offices, and other common and necessary spending.
- Some write-off amounts like vehicles and home expenses will depend on whether your expenses are exclusive to business or a mix of personal and business use.
- Keeping accurate records and saving receipts are key to claiming business write-offs.
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15 LLC Tax Deductions
The Internal Revenue Service offers a number of LLC tax write-offs for owners so you can reduce your taxable income and save money.
1. Self-Employment Tax Deduction
Minimizing your tax liability through the self-employment tax deduction is one of the most significant ways to reduce taxable income for LLC owners. If you’re the sole owner of a limited liability company, you’re obligated to pay the full cost of the self-employment tax. As of 2023, that cost is 15.3%, which includes taxes for both Medicare and Social Security. However, you’re able to reduce this income tax burden by declaring half of this, or 7.65%, on your income taxes.
2. Legal and Professional Fees
There are a number of professionals you may need to hire for the running of your LLC, including an accountant or tax professional, notaries, and legal professionals. Whether it’s for tax preparation, contracts, or document preparation, you can deduct the cost of legal and other professional fees to reduce your tax burden. This applies to everyday costs like preparing financial documents and records necessary for your business, as well as to things like tax audits and legal cases where you may be required to hire a professional team to manage unique circumstances.
3. Automobile Expenses
When you use your car or other vehicle for your LLC, you can deduct common auto expenses from your qualified business income. Vehicles that are exclusively for business usage qualify for deducting the full cost of the vehicle, miles driven, parking fees, and fuel. You can also include depreciation since your vehicle qualifies as a piece of business equipment. If your vehicle is used for a mix of personal and business transport, you’ll have to calculate what percentage of fuel and mileage is used for business and write off only that amount.
4. Bank Fees and Interest
Running an LLC often comes with significant banking fees. You may have to take out startup loans to finance your business, use credit to purchase new equipment, or pay fees to maintain a business account at your bank. From interest on purchases made with credit to the interest on business and startup loans, interest payments on your business banking are fully tax deductible. Business owners can also deduct everyday business banking fees for things like money transfers, new checks, and business bank account name fees.
5. Home Office
If you use a home office for managing your LLC, you can deduct a portion of your home office expenses. This includes a portion of rent for renters, or a portion of property taxes and mortgage payments for homeowners. Deductions are based on the square footage of your home office, and the space must be used exclusively for business purposes. Business owners are also able to deduct a portion of relevant costs like WiFi, so it’s important to save receipts for all expenses related to your home office.
6. Office Supplies
Whether you work from home or at an office, you can deduct the cost of office supplies for your LLC filing business taxes. Some common office supply deductions include:
- Printer ink
- Office furniture including desks and desk chairs
- Software subscriptions like Microsoft Office
- Postage costs
- Office cleaning supplies
Business owners can also deduct the cost of computers, printers, and other office equipment that’s used for business purposes. Eligible supplies include everything from minor purchases of pens and ink to major things like equipment and furniture, so it’s worth saving your receipts for office supply write-offs.
7. Travel Expenses
When you travel for work, you’re able to deduct almost all of your business travel expenses. These deductible expenses can include:
- The cost of flights, train tickets, and other modes of transport
- Hotels and business lodging
- Car rentals, parking, and fuel
- Rentals for conference rooms and other business meeting essentials
Save all receipts from your business expenses when you travel so that you have clear proof that your expenses were necessary and related to the work of your LLC. Non-business expenses, such as personal entertainment expenses, don’t qualify for write-offs even if they’re incurred while you’re on a business trip.
Ready to make tax season easier than ever? FreshBooks helpful videos on tax preparation help you save money while making LLC tax return filing quick and easy.
8. Phone and Internet
As long as your phone and internet are used for business purposes, you can deduct the cost of your cell phone and internet bills. For office phones and internet, you can deduct the full costs, whereas for home phone and internet, you can deduct the portion that you use for business. This also applies to the cost of new phones and internet-related equipment like modems that you need to conduct your business.
9. Business Meals
You can deduct 50% of the cost of most business meals at restaurants. This includes meals with employees, clients, and other work connections where you actively discuss work during the meal. This applies to your personal food or to your total bill if you’re treating clients to a meal. There are also some food expenses that are 100% tax-deductible too, such as snacks for customers, food at events for charitable contributions, or food for employee events like annual parties. You can also deduct 100% of meal costs if they’re directly related to your business—for example if you work as a restaurant critic or food reviewer.
10. Business Startup Costs
New LLC business owners can deduct some of the costs of creating a company. Particularly if you’ve invested money to start your new business, this write-off of startup expenses can help reduce financial strain. If your total costs for starting a business are $50,000 or less, you can deduct up to $5,000 for organizational costs and $5,000 for initial startup costs in your first tax year. These deductions decrease if your startup costs exceed $50,000, and are not tax deductible if your startup costs are greater than $55,000.
11. Advertising and Promotions
Starting your LLC can require a significant amount of promotion to attract new clients and grow your business. You can deduct a wide variety of advertising and promotional elements, including:
- Printing costs like business cards and posters
- Ads for television, online, and social media
- The cost of designing and maintaining your website
- Promotional events
- Sponsorships of local events, sports teams, etc.
12. Business Insurance
There are a wide variety of business insurance types, and most of them can be deducted from your taxes since they’re considered ordinary and necessary. Ordinary refers to commonly used in your industry, while necessary is required for your business. Most businesses will have some type of insurance, and may also be required to carry it under state or local laws. Some businesses also provide employee health insurance and other employee support. You can deduct these insurance premiums from your taxes as a business expense.
13. Education Expenses
You can deduct educational expenses for current employees of your LLC. This can include yourself, your other business owners, your partner if you have multiple LLC owners, and full-time employees who are contracted to your business. The educational program must be related to your business, meaning it increases your business expertise or adds other value to your LLC. You can get a tax deduction for the interest on student loans if your degree is related to your LLC.
14. Bad Debt
If you find yourself in a position where a client hasn’t paid their bill, there’s no need to mourn lost profits yet—tax deductions can help. ‘Bad debt’, or debts from customers who have evaded their bills, can be claimed as a deduction on your taxes. This also applies to outstanding debts from companies who have gone out of business and still owe money to your LLC. It may be necessary to demonstrate that customers can’t or won’t pay their debt, so invoices and payment reminders can be a helpful paper trail.
15. Healthcare Expenses
If your medical expenses represent more than 7.5% of your last year’s adjusted gross income, you may be able to write some of them off on your taxes. These expenses must be unreimbursed by other things like health insurance. Some qualifying expenses include:
- Fees for medical practitioners like doctors, surgeons, and dentists
- Hospital and care home costs
- Insulin and other prescription drugs
- Medical devices including dentures, eyeglasses, and hearing aids
- Travel expenses related to obtaining medical care
Elevate Your Tax Preparation with FreshBooks
As a small business owner, there are plenty of ways you can use tax deductions for LLC owners to reduce your taxes and save money. There are some costs like office supplies and advertising that you can claim completely as business taxes, and others like home offices and vehicles for business and personal use where you can claim the business portion of your spending.
When claiming your tax write-offs for LLCs, it’s essential to document your business expenses and keep track of your receipts. FreshBooks accounting software lets you log and categorize all of your expenses, so it’s easy to find the totals when it’s time to pay taxes. Try FreshBooks free and discover the features that can support your small business today.
Looking for even more information on how the business tax deductions and write-offs work for LLCs? Explore resources on Small Business Tax Deductions to learn even more strategies for saving money.
FAQs About Tax Write-Offs For LLCs
Learn even more about filing as an LLC and the ways that tax deductions can reduce your taxable income.
Can a single-member LLC write off expenses?
Yes, single-member LLCs can write off a variety of business expenses. This includes some startup costs, home office expenses, business and health insurance premiums, and other expenses that are eligible for a refundable tax credit. The amounts you can write off may vary depending on whether you’re a single owner or have partners and other employees.
Can you write off a car with an LLC?
If your car is used for business purposes, you can write off some or all of your vehicle expenses as tax deductions for LLCs. If you use your vehicle exclusively for business you can write off all your mileage, fuel expenses, and insurance, and include depreciation of the asset.
What deductions can I claim without receipts?
You can claim self-employment insurance and business insurance without receipts, so long as you have a copy of your policy. You can also claim half of your self-employment taxes, a portion of home office expenses, phone bills, and vehicle use, since these are claimed as a percentage of the total costs.
Can I write off alcohol as a business expense?
While you can write off some alcohol purchases as business deductions for LLCs, it’s important to be reserved in the spending and careful about reporting. Alcohol and other entertainment must be considered ‘ordinary and necessary,’ meaning some alcohol with dinner may be allowed, but extravagant liquor expenses may be flagged.
How much of your house can you write off for business?
You can write off the portion of your home that you use for business. For example, the square footage of your home office represents a percentage of your home that’s necessary for business, and you can apply that to deduct your mortgage interest, a portion of rent, home insurance, and other home costs.
Can I write off clothing as a business expense?
If your clothing is used to promote or run your business, you can write it off as a business expense. This includes things like business uniforms for yourself and your employees or promotional costs like shirts and hats printed with your logo.
Can I write off expenses at LLC with no income?
Yes, even if your LLC has no income you can still write off expenses and report it as a loss. Since this counts as business activity, you need to clearly report it on your annual taxes. It can later be applied to offset future income once you begin turning business income into a profit.
About the author
Sandra Habiger is a Certified Public Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Learn more about her work at http://www.sixfiguresaccounting.com/ .