Tax Write-Offs for an LLC | ZenBusiness Inc. (2024)

As a business owner, you’re always looking for any cold, hard cash you can get back. Many entrepreneurs choose LLCs for their flexibility and pass-through taxation. Did you know that there are many tax write-offs for LLCs available, as well? Your LLC may be eligible for tax write-offs you didn’t even know about.

Only your tax professional can determine your final bill. Keep in mind that the more legitimate tax deductions you can claim, the less tax you’ll owe. We’ll provide you with a brief guide to business tax deductions and LLC tax write-offs. Then, you should have a good sense of how to talk to your tax professional come tax time.

An accountant or tax preparer can provide you with tax advice and what deductions are specific to your business. In the meantime, we’re here to help you identify common tax write-offs for your LLC so you can keep some money in your pocket to help grow your small business.

What is a tax deduction?

A tax deduction is an amount you can subtract from your reported taxable income when you file your taxes. This deduction lowers the amount of taxes you owe. There are two types of deductions. A standard deduction is a single deduction that you take at a fixed amount. Filers also have the choice of itemizing their deductions on Schedule A of their federal income tax returns filed with the Internal Revenue Service (IRS).

Tax Deduction Savings

If you operate as a single-member LLC, your standard deduction when you file your 2022 taxes will be $12,950. For many business owners, filing itemized deductions can yield substantial savings. Itemized deductions in most cases are more beneficial than using the standard deduction.

Common Types of LLC Tax Write-Offs

What expenses can you write off with an LLC? We’ll walk you through a brief tax deduction cheat sheet and help you understand both tax deductions and what can be written off as a business expense.

1. Auto Expenses

Many business owners wonder if there’s an LLC car write-off available. Entrepreneurs often use their own cars for deliveries and meetings. The good news is that you can write off your car expenses using one of two methods allowed by the IRS.

A common misconception is that “auto expenses” include only mileage. Car expenses can include fuel and oil, repairs, maintenance, and insurance.

Actual Expense Method

Using the actual expense method, you simply add up all of your vehicle expenses and then divide by the percentage of time you use your car for business. This can include lease payments, fuel, maintenance, and other expenses. The actual expense method is good for rideshare drivers or other small business owners whose jobs have heavy driving demands.

Standard Mileage Rate method

The standard mileage rate method is a much simpler way to write off a car for your LLC. Instead of keeping track of receipts, you simply keep track of your business and personal mileage for the tax year. You can even take a photo of your odometer on New Year’s Day and take another one on New Year’s Eve!

As with other tax deductions, you’ll need to keep track of the percentage of your mileage that applies to your business. You can do this with a paper mileage log or even try an app.

For the first half of 2022, the rate is 58.5 cents per mile and increases to 62.5 cents per mile for the second half of 2022.

Using your vehicle for business and personal use

As we mentioned, if you use your vehicle for both business and personal use, you’ll need to keep track of your business usage. Even if you bought your car for business purposes and have your company’s logo printed on the side, you can’t count the time you spend driving your child to soccer practice as a business expense. However, if you bought and used your car exclusively for your company, then you might be able to claim 100% of your car expenses as business tax deductions. Talk to your tax professional or visit our personal vs. business expenses guide to learn more.

2. Cost of Going into Business

One of the most challenging things for entrepreneurs is calculating startup costs. We can help you figure out your small business startup costs and help you understand when you’ll make a profit. But more importantly, did you know that many of your startup costs are tax deductible? You might wonder, “Can I deduct startup costs with no income?” We’ll help you understand what deductions might be available to you as you start your business.

3. Legal and Professional Fees

Professional fees for accountants, attorneys, and related expenses are often considered business expenses and are tax deductible.

You may even be able to write off services like ours that help form your LLC. Registered agents can also be written off as business expenses.

4. Business Insurance

Insuring your business against risk isn’t just smart business — it’s smart money. The cost of business insurance can be a tax write-off for LLCs. Just make sure to exclude any personal insurance costs.

5. Business Travel

Business trips need to be necessary for your travel to qualify for an LLC tax write-off. Your business travel expenses typically have to be for longer than one working day to qualify.

6. Interest Payments

Businesses often take out loans to finance capital investments or operations costs, meaning small business owners can deduct the cost of interest from their taxes.

7. Equipment

100% Bonus Depreciation

Bonus depreciation is a tax incentive that allows a business to immediately deduct a large percentage of the purchase price of eligible assets, such as machinery, instead of writing them off over the “useful life” of that asset. Bonus depreciation is also known as the extra first-year depreciation deduction.

Section 179 Deduction

Section 179 of the US Internal Revenue Code offers an immediate expense deduction to business owners for purchases of depreciable business equipment. Business owners can do this instead of capitalizing and depreciating the asset over time. While this seems like an ideal situation, there are limits to Section 179 deductions, so be sure to check with your tax professional before using this.

De Minimus Safe Harbor

The de minimus safe harbor election allows you to immediately expense assets and certain repairs up to $2,500 per asset or repair. If you’re a reporting company or you have financial statements audited by a CPA, that amount is raised to $5,000.

To use this tax election, the asset or repairs in question must be for ordinary and necessary business use. Also, your business must be consistent in how they account for those expenses for the tax year. For instance, you can’t expense some items and capitalize others.

The de minimus safe harbor election has some similarities to Section 179. However, it doesn’t come with dollar limitations on the election. This is an excellent LLC tax break to use to immediately capture expenses that might have otherwise been capitalized — with deductions spread out over a number of years.

8. Taxes and Licenses

Taxes, like real estate taxes, can represent a great LLC tax loophole. You can write off property taxes up to a maximum of $10,000. If you’re writing off your property taxes, you should know that you may even be able to write off your homeowners’ association fees! Be sure to check with your tax professional about whether that’s an option.

Professional licenses may also qualify as a business expense. An important tax write-off for LLCs providing licensed professional services can include the cost of obtaining and maintaining your license.

9. Education Expenses

Small business owners need to stay up-to-date on the latest news and technology in their field. Education expenses can include seminars, conferences, workshops, and even formal education related to your industry, profession, or trade.

If the education expense pertains directly to your business, it could be a tax deduction.

10. Advertising and Promotion

When your business is just starting up, you need to find a way to tell customers who you are. Advertising expenses can include any kind of promotional material that tells potential customers who you are and what you do. This includes flyers, websites, business cards, banners, and even skywriting. Almost any kind of advertising and promotion can be a tax write-off for LLCs.

11. Pass-Through Tax Deduction

The TCJA (Tax Cuts and Jobs Act) established a new tax deduction for owners of pass-through businesses like LLCs. Qualifying pass-through business owners can deduct up to 20% of their net business income from their income taxes. This can reduce a small business owner’s effective income tax rate by 20%. This deduction is scheduled to last through the end of 2025 unless extended by Congress.

Limitations for Businesses that Provide Personal Services

Like all LLC tax deductions, there are some limitations. Suppose your business provides personal services, like law or accounting. If your taxable income is over $329,800 for joint filers or $164,900 for individual filers, your pass-through deduction is gradually phased in. It continues to be gradually phased out until your QBI (qualified business income) reaches $429,800 for joint filers or $214,900 for individual filers. This means that if your total income is more than $429,800 if you’re married or $214,900 if you’re single, you get no deduction.

Limitations for Businesses that Don’t Provide Services

If you’re a non-service provider and your taxable income is $100,000 or more above the income threshold if married filing jointly or $50,000 if single — your pass-through deduction is fully subject to a W-2 wage and business property limitation.

Similarly, suppose your taxable income is less than $100,000 over the threshold if you’re married and filing jointly, or less than $50,000 over the threshold for single filers. Then, only part of your deduction is subject to the limit, and the rest is based on 20% of your QBI.

12. Salaries and Benefits

Companies pay business tax on salaries and wages that they pay out to employees, meaning this can be a qualifying tax write-off. However, certain rules govern what types of salary payments are business expenses.

To qualify as a business expense, an employee can’t function only as the sole proprietor, a partner, or a limited liability company member. Furthermore, the salary paid must be necessary for the business to operate and commensurate with their experience and job function.

More Write-Offs: Often-Missed Business Expenses

13. Home Office

If you run your business from home, you can deduct certain expenses like electricity, internet, and other things necessary to run your business. Just be sure to speak with your tax professional about ensuring you’re allocating the correct proportion of time, space, and costs to your business expenses versus home expenses.

14. Personal Tax Deductions

Dependent Care

Working parents or parents actively pursuing employment who have dependents under age 13 can claim the Child and Dependent Care Tax Credit.

This credit is a dollar-for-dollar reduction of your taxes for up to 35% of your expenses. Depending on your expenses, this could equal up to $3,000 for one child or $6,000 for two or more children.

Retirement Contributions

If you’re self-employed or have a pass-through business, retirement plan contributions may represent a great tax write-off. You can deduct contributions to a solo or one-participant 401(k) plan of up to $61,000 in 2022 or 100% of earned income, whichever is less. You can add an extra $6,500 to your contributions, and thus deductions if you’re age 50 or older.

Health Care Expenses

For tax returns filed in 2022, taxpayers can deduct qualified, unreimbursed medical expenses that are more than 7.5% of their 2021 adjusted gross income.

Qualifying medical expenses can include:

• Payments to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and other medical practitioners
• Hospital and nursing home care
• Acupuncture
• Addiction programs
• Weight-loss programs for doctor-diagnosed diseases, including obesity
• Insulin and prescription drugs
• Dentures, reading or prescription eyeglasses, contacts, hearing aids, crutches, wheelchairs, and service animals
• Transportation costs to and from medical care

This isn’t an exhaustive list, so be sure to ask your tax professional to confirm whether your medical expenses qualify.

Charitable Contributions

Charitable contributions can account for a significant portion of your LLC business expenses. They can also help the community get to know your business and raise your profile by providing much-needed exposure when you’re just starting out.

Be sure to keep good records so you can prove that you made appropriate donations to legitimate charities and always save receipts.

15. Moving Expenses

Since 2018, moving expenses are no longer eligible for a deduction on your federal tax return. That said, some states continue to provide a deduction on your state tax return for qualifying filers. Check with your tax professional to see if your state offers this deduction and if you qualify.

16. Rent

Suppose you’re self-employed, you rent your home, and you use your home as your place of business. If so, your rent payments could be counted toward your home office deduction on your tax return. Check with your tax professional to determine how much can be deducted.

17. Telephone and Internet

Providing the business with internet and phone service is typically a 100% deductible. This is especially true if phone and internet service are essential to the function and operation of your business. This can also include in-flight internet purchases and mobile Wifi devices and purchases.

However, if you use your business phone and internet for a mix of work and personal reasons, be sure to keep track and only write off the portion of usage that applies specifically to your business.

18. Bank Service Charges

If your bank charges fees for maintaining your accounts, or interest on your business credit cards, these could qualify as business expenses and could be deducted from your tax returns.

19. Business Association Payments

Entrepreneurs sometimes don’t realize that their trade association dues are on the LLC tax deductions list. If you’re a member of any local or national business association, be sure to write off your association dues and payments. These typically count as business expenses.

20. Business Gifts

You can deduct up to $25 per person for gifts given directly or indirectly during each tax year. Shipping and handling aren’t included in that $25 limit.

Incidental items costing $4 or less that may already have your company’s logo on them are excluded. Meaning you can give out almost as much swag as you want and still benefit from the gift deduction!

21. Business-Related Books and Magazine Subscriptions

Books and subscription fees are essential to keeping business owners up-to-date and allowing them to run successful businesses in most industries. Certain industries even require subscriptions to sophisticated software that provides vital real-time information. All of these can qualify for tax deductions and write-offs under the correct circ*mstances.

Managing Your LLC Tax Deductions

We can help get your business up and running, and once you’re up and running, we can help you keep track of your finances. Our corporate and LLC formation services can help get your company set up fast. Our ZenBusiness Money App can help keep your financial documents and receipts organized and ready for tax time. It makes bill paying, invoicing, and doing your taxes incredibly straightforward. And once you’re headed in the right direction, our Accounting Basics for Your Small Business guide can help you gain the confidence you need to be fluent in the language of finance.

Tax Information and Resources

Start an LLC in Your State

When it comes to compliance, costs, and other factors, these are popular states for forming an LLC.