What Can an LLC Write Off? Common Tax Deductions

An LLC, or Limited Liability Company, offers a flexible business structure that provides liability protection to its owners. A significant advantage for LLCs is their ability to reduce taxable income through business write-offs. These deductions allow businesses to subtract eligible expenses from gross revenue, lowering the net profit subject to taxation.

General Principles of Business Deductions

Businesses can deduct expenses that are “ordinary and necessary” for their trade or business. An “ordinary” expense is common and accepted in the industry, while a “necessary” expense is helpful and appropriate. These expenses must be directly related to the LLC’s business activity and not personal.

Expenses are broadly categorized into current expenses and capital expenditures. Current expenses are those consumed within the current tax year, such as rent or utility bills, and are fully deductible in the year they are incurred. Capital expenditures, in contrast, are investments in assets that provide a benefit for more than one year, like equipment or buildings. The cost of capital expenditures is recovered over time through depreciation or amortization, rather than being fully deducted in the year of purchase.

Accurate record-keeping is essential for all business deductions. Taxpayers must substantiate expenses with adequate records, including the amount, time, place, and business purpose. Stricter substantiation rules apply for certain expenses, such as travel and meals, often requiring detailed logs or receipts.

Common Operational Expenses

Many everyday costs incurred by an LLC qualify as deductible operational expenses, directly reducing the business’s taxable income.

Office Expenses

Office expenses include rent, utility bills (electricity, gas, water), and internet services. Supplies like paper, pens, toner, and software subscriptions are also deductible. For home-based businesses, the home office deduction allows a portion of home-related expenses. This can be calculated using either a simplified method ($5 per square foot of dedicated business space, up to 300 square feet) or the regular method (calculating the actual percentage of the home used exclusively for business and deducting a proportional share of expenses like mortgage interest, property taxes, utilities, and home insurance).

Vehicle Expenses

Costs associated with using a vehicle for business purposes are deductible. Businesses can choose between two methods: the standard mileage rate (set annually by the IRS, accounting for depreciation, insurance, and other costs) or actual expenses (gas, oil, repairs, insurance, and vehicle depreciation). A detailed mileage log is important to substantiate business use for either method.

Travel and Entertainment

Business travel expenses are deductible when a trip requires an overnight stay away from the taxpayer’s tax home. This includes transportation (flights, train tickets, car rentals), lodging, and certain business meals. For business meals, 50% of the cost is deductible, provided the meal is not lavish or extravagant and the taxpayer (or an employee) is present. Entertainment expenses are not deductible.

Professional Services

Fees paid for professional services are deductible. This includes payments to legal professionals for business formation or contract review, accountants for tax preparation and financial advice, and consultants for specialized business guidance. These services are considered ordinary and necessary for an LLC’s operations.

Marketing and Advertising

Expenses incurred to promote the business and attract customers are fully deductible. This includes website development and maintenance, online advertisements, print ads, promotional materials, and public relations efforts.

Insurance Premiums

Business insurance premiums are tax-deductible as ordinary and necessary business expenses. This includes general liability, professional liability, commercial property, and workers’ compensation insurance. Health insurance premiums paid by a self-employed individual or an LLC for its owner(s) may also be deductible, often as an adjustment to income rather than a business expense.

Employee Wages and Benefits

If an LLC has employees, wages, salaries, and compensation paid to them are fully deductible. This also extends to employee benefits, such as health insurance premiums and retirement plan contributions. For LLCs taxed as an S-corporation, owner-employees can pay themselves a reasonable W-2 salary, which is deductible by the business.

Interest Expense

Interest paid on business loans, lines of credit, or credit cards used for business purposes is deductible. To qualify, loan proceeds must have been used solely for business operations, such as purchasing inventory, acquiring assets, or funding expansion. Personal expenses financed through a business loan are not deductible.

Bank and Credit Card Fees

Fees associated with business bank accounts, such as monthly service charges, transaction fees, and ATM fees, are deductible. Annual fees and interest charges on business credit cards are also deductible expenses.

Education and Training

Expenses for education and training are deductible if they maintain or improve skills needed in the business. This includes seminars, workshops, professional certifications, and industry-specific courses. The education must be directly related to the current business and cannot qualify the individual for a new trade or business.

Capital Expenditures and Other Specific Deductions

Beyond ongoing operational expenses, LLCs often incur costs for assets with a longer useful life. These capital expenditures are treated differently for tax purposes, with costs recovered over time.

Depreciation and Amortization

Depreciation allows businesses to deduct the cost of tangible assets, such as machinery, equipment, vehicles, and buildings, over their useful lives. This process allocates the asset’s cost over several years, reflecting its wear and tear or obsolescence. Amortization is a similar concept applied to intangible assets, like patents, copyrights, and goodwill, allowing their cost to be spread out over their legal or economic lives.

Section 179 Expensing

Section 179 of the Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment and software placed into service during the tax year, rather than depreciating it over multiple years. For 2025, the maximum amount that can be expensed under Section 179 is $1 million, with a phase-out threshold beginning at $2.5 million of property placed in service.

Bonus Depreciation

Bonus depreciation allows businesses to deduct an additional percentage of the cost of qualifying new and used property in the year it is placed in service. The “One Big Beautiful Bill Act,” enacted in July 2025, permanently restores 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. This means businesses can immediately deduct the entire cost of eligible assets. Property placed in service on or before January 19, 2025, remains subject to a 40% bonus depreciation rate for 2025.

Startup and Organizational Costs

When forming an LLC, certain initial costs are incurred, such as legal fees for drafting operating agreements and state filing fees. Businesses can elect to deduct up to $5,000 in business startup costs and $5,000 in organizational costs in the year the business begins. Any costs exceeding these amounts must be amortized over a period of 180 months (15 years).

Qualified Business Income (QBI) Deduction (Section 199A)

The Qualified Business Income (QBI) deduction allows eligible owners of pass-through entities, including LLCs, to deduct up to 20% of their qualified business income. This deduction is taken on the owner’s personal tax return, reducing their individual taxable income. It applies to income from sole proprietorships, partnerships, and S corporations. Various limitations and thresholds apply, particularly for higher-income taxpayers and certain service businesses.

Tax Implications for LLC Owners

Tax implications for LLC owners are tied to the entity’s pass-through taxation structure. By default, an LLC is not taxed as a separate federal entity; its income and deductions are “passed through” to the owners’ personal tax returns. This avoids the “double taxation” of C-corporations, where profits are taxed at the corporate level and again when distributed to shareholders.

For a single-member LLC, the business is treated as a disregarded entity, and its income and expenses are reported on the owner’s Schedule C of Form 1040. Multi-member LLCs are taxed as partnerships, requiring the LLC to file Form 1065 and issue a Schedule K-1 to each member, detailing their share of the business’s income, deductions, and credits.

Active owners of an LLC are subject to self-employment tax, which covers Social Security and Medicare taxes. The self-employment tax rate is 15.3% (12.4% for Social Security and 2.9% for Medicare). This tax applies to 92.35% of net earnings from self-employment. LLC owners can deduct one-half of their self-employment taxes from their gross income when calculating adjusted gross income.

An LLC can elect to be taxed as an S-corporation or a C-corporation, which changes how deductions flow to the owner. Electing S-corporation status allows owners to pay themselves a reasonable W-2 salary (subject to payroll taxes), while remaining profits can be distributed as dividends (not subject to self-employment tax). This can reduce the overall self-employment tax burden. If an LLC elects C-corporation taxation, the business pays corporate income tax, and owners are taxed separately on any dividends received, leading to double taxation.