What Tax Write-Offs Can I Use for an LLC?

Limited Liability Companies, or LLCs, offer business owners a flexible structure combining the liability protection of a corporation with the pass-through taxation of a partnership or sole proprietorship. LLCs can significantly reduce their taxable income through legitimate tax deductions, often called “write-offs.” These deductions allow businesses to subtract certain expenses from their gross income, lowering the amount subject to taxation.

General Operating Expense Deductions

Many common, recurring expenses incurred by an LLC are deductible from its taxable income. These deductions cover the daily costs of running a business.

Rent for office space or commercial property, along with utilities like electricity, gas, water, and internet services, are typically deductible. Office supplies, from pens to printer ink, are also deductible as they are consumed in business operations.

Professional services from accountants, lawyers, or business consultants for advice or assistance are fully deductible. Advertising and marketing expenses, including website development, social media campaigns, and print advertisements, are also deductible. Premiums paid for business insurance, such as general liability or professional liability, are deductible expenses.

Employee salaries, wages, and associated benefits like health insurance contributions and retirement plan contributions are frequently claimed deductions for LLCs with employees. Business travel expenses, including airfare, lodging, and 50% of business meals, are deductible when incurred away from home for business purposes. Software subscriptions and professional development courses directly related to enhancing business skills are further examples of deductible operating expenses.

Deductions for Specific Assets and Business Property

LLCs can deduct expenses related to acquiring and using specific assets or the business use of personal property. Vehicle expenses incurred for business purposes are deductible, with two methods available: the standard mileage rate or the actual expense method. The standard mileage rate for 2024 is 67 cents per business mile driven, covering costs like depreciation, maintenance, and fuel.

Alternatively, the actual expense method allows deducting specific costs such as fuel, repairs, maintenance, insurance premiums, and interest on a vehicle loan. Under this method, a portion of the vehicle’s cost can also be recovered through depreciation over its useful life.

The home office deduction is available to LLC owners who use a portion of their home exclusively and regularly for business. Two methods exist: the simplified option and the regular method. The simplified option allows a deduction of $5 per square foot, up to a maximum of 300 square feet ($1,500 annually).

The regular method requires calculating actual home office expenses, such as a percentage of mortgage interest, real estate taxes, utilities, insurance, and depreciation of the home. This method can result in a larger deduction if expenses are substantial. The purchase of equipment and machinery, like computers or office furniture, can also be deducted through depreciation over their useful life.

Internal Revenue Code Section 179 allows businesses to deduct the full purchase price of qualifying equipment and software placed in service during the tax year, up to a limit. For tax year 2024, the maximum Section 179 deduction is $1,220,000, with a phase-out threshold of $3,050,000. Bonus depreciation, another accelerated method, permits deducting an additional percentage of the cost of new or used qualified property in the year it is placed in service. For property placed in service in 2024, the bonus depreciation rate is 60%.

Deducting Start-up and Organizational Costs

When forming an LLC, certain expenses are incurred before the business officially begins operations or generates revenue. These “start-up” and “organizational” costs have specific deduction rules.

Start-up costs include expenses to investigate or create a business, such as market research, pre-opening advertising, and employee training. Organizational costs are directly related to LLC formation, including legal fees for drafting the operating agreement, state filing fees, and accounting fees for initial record setup.

Under Internal Revenue Code, businesses can deduct up to $5,000 of each category of expense in the year the business begins active trade or business. This initial deduction is reduced dollar-for-dollar if total start-up or organizational costs exceed $50,000.

Any remaining start-up or organizational costs not immediately deductible must be amortized over 180 months (15 years), starting when the business begins. This allows the business to recover initial investments over time, reducing taxable income in subsequent years.

Understanding Eligibility and Maintaining Records

For an expense to be deductible, it must be “ordinary” and “necessary” for the business operation. An “ordinary” expense is common and accepted in the industry. A “necessary” expense is helpful and appropriate for the business. The tax code also specifies that expenses must not be lavish or extravagant.

Maintaining accurate records is important for substantiating claimed deductions. The Internal Revenue Service (IRS) requires businesses to keep records proving the amount, time, place, and business purpose of each expense. This documentation is essential for demonstrating the legitimacy of deductions during an audit.

Acceptable records include:
Original receipts
Invoices
Canceled checks
Bank statements
Detailed mileage logs for vehicle expenses
Records supporting utility bills, insurance premiums, and mortgage interest payments for home office deductions

Organizing these records systematically simplifies tax preparation and provides a reliable audit trail.

Reporting Deductions on Your Tax Return

The method an LLC uses to report deductions on its federal tax return depends on its tax classification. This flexibility allows owners to choose a tax treatment that suits their business.

If an LLC has only one owner, the IRS generally treats it as a “disregarded entity,” taxed as a sole proprietorship. Income and expenses are reported on Schedule C (Form 1040), Profit or Loss from Business.

For LLCs with multiple members, the default classification is a partnership. These LLCs report income and deductions on Form 1065, U.S. Return of Partnership Income. The partnership does not pay income tax; instead, each partner receives a Schedule K-1 (Form 1065) showing their share of income and deductions, which flow through to their individual Form 1040s.

An LLC can also elect to be taxed as an S corporation, filing Form 1120-S, U.S. Income Tax Return for an S Corporation. S corporations are pass-through entities, with income and deductions reported on Form 1120-S and passed through to shareholders on Schedule K-1 (Form 1120-S) for their individual tax returns.

Finally, an LLC can choose to be taxed as a C corporation, filing Form 1120, U.S. Corporation Income Tax Return. A C corporation is a separate taxable entity that pays its own corporate income tax on its net income. Deductible expenses are reported directly on Form 1120.