What Are Some Tax Write Offs for an LLC?

By Larissa Bodniowycz, J.D.

What Are Some Tax Write Offs for an LLC?

By Larissa Bodniowycz, J.D.

Limited liability companies (LLCs), like all other businesses, have the opportunity to write off certain expenses on their taxes, reducing the amount of taxes owed by the LLC. The Internal Revenue Service calls these write-offs "deductions."

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LLC Tax Status

LLCs are not a separate tax category, so they have no classification of their own. By default, they are taxed in the same manner as partnerships, but LLCs can also choose to be taxed like corporations or sole proprietorships.

In general, LLCs with only one owner are taxed as a sole proprietorship. When there is more than one member in an LLC, then the IRS would tax it as a general partnership. If an LLC would rather be taxed as a corporation, that statues can be changed through the IRS. In either of these cases, LLCs can reduce their tax obligations through write-offs for business-related expenditures.

Common Tax Deductions for LLCs

Available tax deductions vary among businesses. For example, the write-offs of an LLC that operates a bathing suit store are different from the write-offs for an LLC that operates a furniture manufacturing facility. The following are some of the most common LLC tax deductions across industries:

  • Rental expense. LLCs can deduct the amount paid to rent their offices or retail spaces. An LLC that operates out of a home office can deduct a proportion of the amount spent per month on the home.
  • Charitable giving. Doing good is good for tax purposes. An LLC can deduct charitable donations of up to 10 percent of its taxable income.
  • Insurance. Most insurance that is necessary is deductible as a business expense. For example, professional liability insurance for a therapist would be deductible. Certain amounts paid for insurance for employees, such as disability insurance, are also deductible. However, how and in what amounts insurance premiums are deductible is a nuanced area that varies with the type of insurance.
  • Tangible property. Property purchased for the LLCs use can be deducted from taxes for the year of the purchase.
  • Professional expenses. Expenses incurred in maintaining professional licenses, engaging in professional development, and paying for professional resources such as industry journals are deductible.
  • Meals and entertainment. Half of the cost of meals and entertainment related to the business—for example, taking a prospective customer out to dinner—is deductible. Meals with employees can be deducted in full. Be cautious; meal and entertainment write-offs are notoriously abused. For this reason, the IRS keeps a lookout for meal and entertainment expenses that are disproportionate when compared to the LLC's income and other tax write-offs.
  • Independent contractors. Amounts paid to independent contractors are deductible. However, if the amount paid to the contractor is above a certain threshold, the LLC must also report the amounts paid to the contractor on a Miscellaneous Income form (Form 1099-MISC).
  • Cost of goods sold. LLCs that manufacture or resell products can use the cost of goods sold to reduce their tax obligations. Businesses usually deduct the cost of goods sold by adding up the total cost of goods sold for the year and deducting it from gross receipts. If an LLC deducts the cost of goods sold in this manner, it cannot also deduct that amount as a separate business expense, which would otherwise give the business two deductions for a single expense.

How to Write Off Deductions

LLCs account for tax write-offs in different ways. Some are written off in whole on a single year's return. This is the case for most smaller expenses. Other expenses are written off in increments over multiple years; this is called depreciation and usually applies to large purchases such as expensive business equipment. Depreciation must follow an IRS-approved method.

Learning how to document all your company's various expenses can be difficult in itself, but knowing how to file everything properly is a whole different struggle. Tax advisors, software programs, and the IRS website are useful sources of guidance if you are confused about how to deduct a particular LLC business expense.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.