What if we told you that every year LLC owners overpay on their taxes.
Some fail to tax plan but most simply miss out on the biggest tax write offs for LLC businesses.
That’s right! You overpaid your Uncle Sam.
So keep on reading, because today, we’re going to reveal the biggest tax write offs for LLC businesses that you can take advantage of.
This post is for those who already have an LLC and for those who may be thinking about starting one.
Also, a quick disclaimer that the information we’re providing in this post is for informational purposes only.
And, specific accounting advice should come from your contact attorney or CPA.
So let’s go ahead and dive into the biggest tax write offs for LLC businesses.
12 Biggest Tax Write Offs For LLC Businesses
1. Startup and Organizational Costs
This write-off allows you to deduct up to $5,000 in startup costs and up to $5,000 in organizational costs.
Startup costs include ALL costs incurred to get your business up and running. Examples include the money you spend on:
- researching your business,
- getting an office,
- ordering business cards,
- training yourself or your staff, and
- everything in between
Organizational costs are the costs to incorporate your LLC such as legal fees and state fees.
Now, if your startup costs are more than $50,000, your allowable deduction will be reduced dollar-for-dollar after $50,000.
And if you spend $55,000 or more, the deduction disappears completely.
Any remaining cost after your deduction must be amortized over the next 15 years.
2. Office Expenses and Technology
Any costs related to your office or technology for business use can be written off.
Typical office expenses include furniture, laptops, power strips, filing cabinets, printers, folders, and more.
Examples of technology may include your CRM, google suite, social media scheduling tools, hosting for your website, and more.
If it is a necessary and ordinary tool or technology to run your business, you should write it off.
3. Business Meals
Thanks to the Consolidated Appropriations Act that went into effect on December 27, 2020, the business-related meals you eat at restaurants are 100% deductible in 2021 and 2022.
If not purchased at a restaurant, you can write off 50% of a business-related meal.
Now notice, we continue our emphasis on meals done in the course of business. As tempting as it may seem, you can’t write off personal meals.
Common examples of business meals expenses include:
- meals with a client,
- meals while traveling for business,
- meals provided for a company meeting, and
- treating your employees to a meal
In short, if the meal is provided while business is being conducted, write it off.
4. Business Travel
All expenses related to business travel can be written off.
This includes the cost of your ticket, hotel, rental car or Uber, dry cleaning, tips, and more.
In the instance your business trip turns into a vacation, you can only write off the portion of the trip that was used for business.
To qualify as business travel, your trip must meet the following three conditions:
- The trip must be necessary for your business.
- The trip must be in a different city than your business address.
- You must travel for more than a normal workday and it must require lodging.
5. Home Office Deduction
More than 50% of all businesses in the United States are now home-based.
And if you use part of your home exclusively for business, you can typically write off expenses related to the business use of your home.
Renters and homeowners can take advantage of the home office deduction.
Common home office deductions you can claim for your business include:
- Utilities such as your internet and electricity
- HOA fees
- Mortgage insurance and Interest
- Homeowner’s insurance or renters insurance
To claim the deduction, you have two choices – the regular method or the simplified method
The regular method requires you to calculate the percentage of your home that you use for business.
For example, if your home is 1,000 square feet and you use 200 square feet for your office, you can write off 20% of your home expenses.
With the simplified method, you can take a standard deduction of $5 per square foot of office, up to 300 square feet.
If you want to skip the calculations, the simplified method may be easier.
6. Phone Expenses
Any phone used for business purposes can be used as a tax write-off.
You are allowed to write off both the cost of the phone and the cost of your phone plan.
And if you happen to use a phone for both personal use and business use – no need to worry.
Simply calculate the percentage of phone use dedicated to your business and multiply it by your overall phone expenses to get your allowable write-off.
7. Business Interest and Bank Fees
If you’ve taken out a loan or credit for your business, there’s a good chance that you have to pay interest.
Luckily, you can write off the interest charges on both business loans and credit cards.
In addition, any fees and charges from the bank are also deductible. This includes monthly account fees, annual credit card fees, and late charges.
8. Cost of Goods
If you sell a physical product, you can write off the entire cost associated with making or acquiring your product.
Common cost of goods examples includes:
- raw materials,
- packaging costs,
- supply costs,
- equipment costs,
- shipping costs,
- storage costs,
- commission or affiliate costs, and
- overhead costs related to the production of the product
Depending on your industry your cost of goods may include different things.
Be sure to include all expenses to create your product when looking for write-offs.
9. Vehicles Used for Business
The vehicle tax deduction is a write-off that a ton of business owners overlook.
If you use your car for business use, expenses related to the vehicle can be taken as a write it off.
There are two methods to write off vehicle expenses – you typically want to use the method that will give you the highest deduction possible.
The first method is by using the Standard Mileage Rate.
When you use the standard mileage rate, you multiply miles driven by the standard mileage rate which is $0.56 for 2021.
So if you drove 1,000 miles for business in 2021, you would multiply that by $0.56 to get a total deduction of $560.
The second method is by using the Actual Expense Method.
When you use the actual expense method, you track all of your expenses including gas, insurance, repairs, etc, and then multiply them by your percentage of miles driven.
So if you have $5,000 of vehicle expenses and use your car 20% of the time for business, you would multiply $5,000 by 20% to get a total deduction of $1,000.
Regardless of the method you use, be sure to keep detailed records of miles driven and business use.
10. Legal and Professional Services
Any legal or professional services that are necessary to run your business can be taken as a write off.
Examples may include things such as legal fees, accountant fees, coaching, and consulting fees.
Depending on your industry, professional services may be different.
A deductible professional service example might be a cleaning service for those with rental or Airbnb businesses.
If the legal fees include personal and business use, be sure to only write off the percentage of expenses related to your business.
11. Salaries and Benefits
You can generally write off the salaries and benefits you pay to employees if they meet the following criteria:
- The employee is not a member of the LLC.
- The salary is paid is reasonable, ordinary, and necessary.
- The employee actually accrues time for the pay period.
12. Work Clothes
You may be able to write off clothing that is necessary and ordinary for your business to operate.
Writing off clothing can be tricky, but a rule of thumb is that if the uniform or clothing can be worn outside of work, it’s likely not tax-deductible.
This means that you can’t write off a suit, even though you may only wear it for your business because it can generally work outside of work.
But here are a few examples of clothing that can be considered tax-deductible:
- protective clothing such as safety boots or masks
- uniforms with your company logo, and
Tax Write Offs For LLC
There you have it – the 12 biggest tax write offs for LLC businesses.
We hope that since you now know these tax write offs, you will be able to save more on your taxes.
But, if you need someone to help you with your specific tax situation, or in case you’re running a different business entity type, we would be happy to help you out!