What Expenses Can I Claim as a Limited Company?

A limited company, like a Limited Liability Company (LLC), is a business structure that legally separates the business from its owners, providing liability protection for personal assets. The IRS tax treatment of an LLC depends on its elections. By default, a single-member LLC is taxed as a sole proprietorship and a multi-member LLC as a partnership. However, an LLC can elect to be taxed as a C-corporation or an S-corporation. Claiming valid business expenses is important for these companies, as it reduces taxable profit and directly lowers the tax bill.

The Core Principle for Claiming Expenses

The Internal Revenue Service (IRS) rule for deducting business expenses is that they must be both “ordinary and necessary.” An ordinary expense is common and accepted in your trade or business. A necessary expense is helpful and appropriate for your business, though it does not have to be indispensable. This means the expense must be directly related to the company’s profit-generating activities. For example, specialized software for a technology consulting firm is directly tied to its ability to earn revenue. While an expense might seem helpful, its connection to the business must be clear. The IRS may question if the full cost of a luxury vehicle is necessary when a more moderate one would serve the same business purpose.

Common Categories of Allowable Expenses

Office and Premises Costs

Costs for a physical business location are deductible. If the company rents a commercial office space, the monthly rent payments are fully deductible. Business rates or property taxes paid on a commercial property are also an operational cost. Utility bills for the office, including electricity, gas, water, and internet service, are deductible. Property insurance for the business premises also falls into this category.

Staff Costs

Compensation paid to employees is a significant deduction. This includes salaries, wages, and bonuses. The employer’s share of payroll taxes, such as Social Security and Medicare, are also deductible. Company contributions to employee retirement plans, like a 401(k), are valid business expenses. Health insurance premiums and other fringe benefits provided to employees are also deductible.

Travel and Subsistence

Expenses for business-related travel are deductible. The cost of airfare, train tickets, or bus fares for business trips can be claimed. When employees use personal vehicles for business, the company can reimburse them using the IRS standard mileage rate, which is 70 cents per mile for 2025. The cost of lodging and 50% of the cost of meals while traveling away from home for business are also deductible.

Marketing and Advertising

Expenditures to promote the business and attract customers are fully deductible. This includes the costs of creating and maintaining a company website, online advertising campaigns, and printing marketing materials like brochures and business cards. Fees paid to attend trade shows for promotional purposes are also a valid marketing expense.

Professional and Financial Fees

Fees for professional services are deductible when for business purposes. This includes fees paid to an accountant for preparing company accounts and tax returns or for legal advice. Bank charges and fees from a business bank account are also deductible. Premiums for business insurance, such as general liability or professional indemnity insurance, are another deductible expense.

Equipment and Subscriptions

The cost of equipment needed to run the business, such as computers, printers, and specialized machinery, is deductible. Depending on the cost, items may be expensed in the year of purchase or depreciated over several years. Under Section 179, businesses can expense up to $1,250,000 in equipment costs for 2025. The cost of necessary software licenses and subscriptions are also deductible. Subscriptions to relevant trade publications and professional journals, as well as required professional membership fees, are allowable deductions.

Managing Expenses with Mixed Business and Personal Use

When an expense serves both a business and personal purpose, you cannot claim the entire amount. The cost must be divided, and only the business portion can be deducted. For example, if a mobile phone is used 60% for business, then 60% of the bill can be claimed as a business expense. This logic also applies to home internet service.

The use of a home as an office is another mixed-use expense. The IRS provides two methods for this deduction. The simplified method allows a standard deduction of $5 per square foot of the home used for business, up to 300 square feet. The regular method involves calculating the percentage of your home used for business and applying it to actual household expenses like mortgage interest, insurance, and utilities.

If a company pays for a personal expense of an owner or employee, such as a vacation, it creates a taxable benefit. This amount is not a deductible business expense for the company but is treated as additional income to the individual. For a C-corporation, this payment could be classified as a constructive dividend to a shareholder, which is taxable to them and not deductible by the corporation.

Required Documentation for Expense Claims

To claim any business expense, the IRS requires you to substantiate deductions with documentary evidence like receipts, invoices, and bank statements. A valid record must show the transaction date, vendor name, a description of the goods or services, and the amount paid. A credit card statement alone is often not enough; an itemized receipt is needed to prove what was purchased.

Certain expenses have stricter requirements. For vehicle expenses, a detailed mileage log is necessary. This log must include the date of each trip, its purpose, the start and end locations, and the total miles driven. Without this log, a vehicle expense deduction could be disallowed during an audit.

Records must be organized and stored systematically, either digitally or physically. You must keep records for three years from the date you filed your return or two years from the date you paid the tax, whichever is later. Records related to employment taxes must be kept for at least four years.

How to Report and Process Expenses

For costs paid personally by a director or employee, the individual must submit an expense report with supporting receipts. The company then issues a reimbursement for the business-related expenditure, which is not taxable income to the employee.

These documented expenses are entered and categorized in the company’s accounting software. This bookkeeping is important for financial analysis and tax preparation.

Finally, these expenses are included in the company’s annual tax return. For a C-corporation, total deductible expenses are reported on Form 1120, the U.S. Corporation Income Tax Return. Expenses are subtracted from the company’s gross income to calculate its taxable income, which determines the final corporate income tax liability.