What Can You Write Off With an LLC?
Learn how your LLC can effectively lower taxable income by understanding eligible business expenses and the critical importance of accurate record-keeping.
Limited Liability Companies (LLCs) can deduct various business expenses, depending on how they elect to be taxed—as a sole proprietorship, partnership, S corporation, or C corporation. These deductions reduce the business’s taxable income, potentially lowering tax liability. This article provides an overview of common and specific write-offs available to LLCs.
Understanding Deductible Business Expenses
For an expense to be deductible by an LLC, it must meet criteria set by the Internal Revenue Service. An expense must be “ordinary and necessary” for the business. An ordinary expense is common and accepted in the specific industry. A necessary expense is helpful and appropriate for the business, though it does not need to be indispensable.
The expense must also be “reasonable” and directly related to the business, not personal use. Expenses benefiting the business for more than one year, such as purchasing an office building or large machinery, are classified as capital expenses. These are not fully deductible in the year incurred but are recovered over time through depreciation or amortization. Current period costs, like monthly rent or utility bills, are deductible in the year they occur.
Common Operating Deductions
Many day-to-day expenses incurred by LLCs are deductible, provided they meet the ordinary and necessary criteria. Rent paid for office or retail space, along with associated utilities like electricity, water, and internet, are deductible business expenses. These costs are fundamental to operating a physical business location.
Salaries, wages, and benefits paid to employees are common operating deductions. This includes direct pay, contributions to employee-sponsored retirement plans, and health insurance premiums.
Office supplies, from paper and pens to printer ink, and smaller equipment purchases, such as computers and printers, are deductible. Advertising and marketing expenses, including costs for business cards, website development, and online ads, are also deductible as they promote the business.
Professional fees paid for services like legal advice, accounting, or consulting are deductible. This includes fees for bookkeeping, tax preparation, and expert guidance. Insurance premiums for general liability, professional liability, business property, and workers’ compensation are also deductible.
Interest paid on business loans can be deducted, though the deductible portion must be directly attributable to the business use of the funds. Business travel expenses, including transportation, lodging, and meals while away from home on business, are also deductible. Meals are limited to 50% of the cost.
Education and training expenses directly related to maintaining or improving skills needed for the business are deductible. This includes costs for workshops, seminars, or courses that enhance business knowledge. Licenses and fees required for the legal operation of the business, such as permits and regulatory fees, are also deductible.
Costs for repairs and maintenance of business property, excluding significant improvements that extend an asset’s life, are deductible. Bank fees and credit card processing fees are also deductible.
Specific Deductions for LLC Owners
LLC owners, especially those taxed as sole proprietorships or partnerships, have access to specific deductions:
Self-Employment Tax Deduction
Self-employed LLC owners can deduct one-half of their self-employment taxes, which cover Social Security and Medicare contributions. This deduction is taken on their personal tax return.
Health Insurance Premiums
Self-employed LLC owners may deduct health insurance premiums paid for themselves, their spouse, and dependents. This deduction applies if they are not eligible for coverage under an employer-sponsored health plan.
Home Office Deduction
LLC owners who use a portion of their home exclusively and regularly for business can deduct a percentage of related home expenses. This includes a portion of mortgage interest, rent, real estate taxes, utilities, and repairs. The space must be used solely for business. Two methods are available: the regular method, which calculates actual expenses, and the simplified option, allowing a deduction of $5 per square foot for up to 300 square feet, capped at $1,500.
Vehicle Expenses
Vehicle expenses incurred for business purposes are deductible. Owners can choose between the standard mileage rate (70 cents per mile for 2025) or deducting actual expenses like gas, oil, repairs, insurance, registration fees, and depreciation. Meticulous records, including mileage logs, are necessary to substantiate this deduction.
Startup and Organizational Costs
Startup and organizational costs incurred before the business officially opens can be partially deducted and amortized. Businesses can deduct up to $5,000 of startup costs and $5,000 of organizational costs in the first year. If total costs exceed $50,000, the $5,000 deduction is reduced dollar-for-dollar. Any remaining costs must be amortized over 180 months (15 years). These expenses include legal fees for forming the LLC, market research, and pre-opening advertising.
Maintaining Proper Records
Meticulous record-keeping is essential for all LLCs to substantiate claimed business deductions. Without adequate documentation, the IRS can disallow expenses during an audit, leading to additional taxes, penalties, and interest.
Required records include receipts, invoices, canceled checks, and bank and credit card statements that show the date, amount, payee, and business purpose of each transaction. For vehicle expenses, a detailed mileage log documenting business trips is necessary. Digital records, such as those kept through accounting software, are acceptable if accurate and accessible.
Separating business and personal finances is a best practice. Using a dedicated business bank account and credit card simplifies expense tracking and helps avoid commingling funds. This separation makes it easier to identify and categorize business expenses.
Most tax records should be kept for at least three years from the date the tax return was filed. However, some records, especially those related to assets or significant underreported income, may need to be retained for longer periods, potentially up to six or seven years, or indefinitely for fraudulent returns. Consulting with a tax professional or utilizing accounting software can aid in maintaining organized and compliant records.