Today, we’ll be going over the top 5 write offs you could be taking for your LLC this year, next year, and the next year after that.

All to save you the most on your taxes.

Are you ready? Let’s get started.

There are over 20M LLCs in the US today. Chances are if you’re reading this post, you have an LLC, or at least are thinking about starting one of your own.

In either case, you want to make sure you’re aware of the tax write offs (OR deductions) you can take to minimize your taxes or even maximize your tax refund.

Top 5 Tax Write Offs for New LLCs

1. Home Office Deduction

This has to be one of our favorite write offs for new LLCs because it can almost apply to everyone and it allows you to write off normally personal expenses as business expenses.

If you have a dedicated room or space in your home that is strictly for business, you can take the home office deduction.

Most small business owners run their business from their home anyway.

And considering the worldwide pandemic we experienced, and still currently experiencing, a lot of us, entrepreneurs, were forced and are forced to work from home.

So here’s how it works:

First, you would need to figure out the square footage of your home office or space.

Then you would divide that by the total square footage of your home. This would give you a business percentage use of your home.

You can then write off that business percentage of your:

• rent
• mortgage interest
• utilities
• insurance
• real estate taxes
• repairs
• maintenance

So for example, let’s say your home office or space is 150 square feet and your entire home is 1500 square feet. So, 150 divided by 1500 is 10%.

You can write off 10% of your rent, utilities, and all of the other expenses we just mentioned.

Side note: Notice how we’ve been mentioning it as a home office or SPACE?

You don’t necessarily need an entire room in your house to take this deduction.

It just has to be a dedicated workspace. So if that’s a desk and chair in the corner of your living room, that could work if that’s the area you’re regularly working from.

2. Start-up and Organizational Costs

When you first start your LLC, there’s a pretty good chance you had some initial investment costs in things like computers, equipment, R&D.

Maybe you even paid a consultant or a lawyer. And you probably had state filing fees you had to pay, right?

You’re able to deduct up to $5,000 in start-up costs in the first year you open your business.

Let’s assume you spent more than $5,000. You can write off the first $5,000 in year 1 and amortize the costs above $5,000 over 180 months.

So those costs are NOT completely wasted and will benefit you over the years to come.

3. Cellphone Expenses

Third on our list of tax write offs for new LLCs, is cellphone expenses. So if you’re anything like us, we do a lot of business on our cellphones.

This creates the opportunity to not only write off the purchase of a cellphone, (which we know can easily be over $1,000) but also the monthly service of that cellphone.

BUT, similar to the home office deduction, you can only write the business use of your cellphone.

So if 80% of the usage of your cellphone is for business purposes, you can only write off 80% of the cellphone and monthly service on your tax return.

4. Vehicle Expenses

This is a BIG one that a lot of business owners miss or just don’t take advantage of.

We’re always reminding our clients about this deduction and they’re like, “Oh yeah, I did drive my car for business.”

When you use your vehicle for business purposes, you are able to write off the mileage or the actual expenses of the vehicle.

Let us explain.

With the mileage approach, you can write off 56 cents in 2021 for every business mile you drove.

This rate changes every year so it is important to keep up what the business mileage rate is year over year. Though, it does not fluctuate too much higher or lower than the current rate.

With the actual vehicle expense write off, you can deduct expenses like gas, tires, insurance, repairs, and lease payments.

If you use your vehicle for both personal and business, these expenses must be split based on the number of miles for business and the total miles driven.

From what we’ve seen, in some cases, it’s better to take the actual expenses. While in other cases, the standard mileage rate is more beneficial.

The bottom line is, you should keep track of your business miles, your overall mileage for the year, and your vehicle expenses.

This is a vehicle tax deduction is a huge one and can literally save you thousands of dollars. Business owners miss this time and time again so we’re hoping you won’t be one of them.

5. Retirement

We hope each and every one of you is saving for retirement.

As a business owner, you’re kind of out on your own when it comes to retirement. But that’s not necessarily a bad thing, you just have to understand the options available to you.

There are the SEP-IRAs, Solo 401ks, and Simple IRAs that can be used as tax deductions and retirement planning tools.

Let’s say you go with a SEP-IRA, you can deduct up to 25% of your self-employed earnings that is put away for retirement.

Solo 401k is similar but you can’t have any employees in your business to establish this retirement account.

It also allows you to contribute more in given a year which would increase your write offs.

We have some excellent posts here on our blog that take a deeper dive into retirement accounts for business owners so be sure to check those out as well.

Bonus Tip: Getting S-Corp Status

So here’s a bonus tip that will save you thousands of dollars in taxes – getting S-Corp status!

Once your LLC is growing, making a profit, and is your sole source of income, then you’re deep in this entrepreneurial game.

So, it can be greatly beneficial to be taxed as an S-Corporation. This will save you 15.3% in self-employment taxes!

As an LLC, taxed as an S-Corporation, you do have to pay yourself (the business owner) reasonable compensation, and SE tax is calculated and paid based on that.

But any profit above your compensation is NOT subject to SE tax, Plus, you can write off the compensation from your business income.

This creates huge savings on taxes. Not enough LLC owners are doing this.

You know one of the benefits of having an LLC is deciding how you want to be taxed.

You can be taxed as a sole proprietor which is usually the default and results in a lot of SE taxes.

You can be taxed as an S-Corporation or even a C-Corporation as well.

Electing to be taxed as an S-Corporation, is not exactly a tax write off, but it is a tax planning strategy.

As your LLC starts earning $50, $60, $70k, and beyond, it is extremely wise and business savvy to start considering your other options in how you want to be taxed.

Tax Write Offs for New LLCs : Wrapping Up

There you have it – the top 5 tax write offs for new LLCs! We hope you guys found this post helpful and will start implementing some of these write offs in your LLC this year.

If you have any questions or need some professional advice, you can check out our tax planning or tax resolution services here. Get the help of the experts today!