What Expenses Can I Deduct as a Member of an LLC?

By Cindy DeRuyter, J.D.

What Expenses Can I Deduct as a Member of an LLC?

By Cindy DeRuyter, J.D.

If you incur business-related expenses as a member of a limited liability company (LLC), you may be able to deduct those expenses on your tax return. Deductibility hinges on whether you are the responsible taxpayer for the business. If you elected C corporation tax treatment for your LLC, the company itself is the responsible taxpayer. As such, you record business expenses on the entity's tax returns, not on your own.

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If, instead, the tax structure is that of a sole proprietorship or partnership, your share of the corporation's income and expenses pass through to you, and you can deduct certain expenses, including those discussed below.

Ordinary and Necessary Business Expenses

If your LLC operates to make a profit, you can deduct business expenses that meet the Internal Revenue Service's (IRS) criteria for being both ordinary and necessary. The IRS defines an ordinary expense as one that is common in your line of work. Certain types of expenses would not likely raise any red flags for companies in some industries but would in others. For example, a music studio might deduct the expenses of pianos and other musical equipment used to teach lessons. A dentist's office trying to deduct the purchase of a piano might face questions from the IRS because musical instruments are not common or accepted for that type of corporation.

Necessary expenses are those that are both helpful and appropriate for your work. It is important to note that an expense that is not indispensable may still be a necessary expense. You cannot deduct most personal expenses. If you have an expense for something used both for business and personal reasons, calculate the percentage used for the company and deduct that amount.

Common LLC Expenses

Some of the most common deductible LLC expenses include the following:

  • Startup costs. You can deduct qualified expenses related to starting your business, including market analysis, legal fees, training expenses, and advertising.
  • Rent expenses. If you lease space for your company, you can generally deduct the amount you pay unless you have title or equity in the property or expect to have it in the future.
  • Employees' compensation. If you have employees who work for your LLC, you can deduct the amount you pay them for the work they perform.
  • Insurance. You may be able to deduct the amounts you pay for business-related insurance, including but not limited to property insurance, workers' compensation premiums, unemployment insurance, professional liability insurance, and other ordinary and necessary insurance premiums.
  • Retirement plans. If you establish a business retirement plan, you may be able to take tax deductions for contributions.
  • Interest. If you pay interest on amounts you borrow for expenses, you may be able to deduct the amount paid.
  • Taxes. If your company pays state, local, or foreign taxes, those company expenses are deductible.
  • Auto expenses. If you use your vehicle for company purposes, you can take a deduction based either on the actual expenses or the standard mileage rate.
  • Depreciation. You may also be able to deduct an amount each year for certain assets you purchase for the business.
  • Advertising and promotion. Keep records of your advertising and marketing expenses, as they are generally tax deductible for LLCs.
  • Home office. You may also be eligible for a home office expense deduction.

These are just some of the most common tax deductions. You may also be able to deduct office supplies, equipment, postage, printing costs, travel expenses, and more. As with any tax matter, consider contacting a qualified professional to get advice specific to your situation.

If you are ready to establish a new LLC, review the information herein and ensure that you follow your respective state's rules and regulations. You'll want to understand what expenses can be deducted so that you can take advantage of the benefits regarding such deductions.

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.