What Can an LLC Deduct?

By Jeff Franco J.D./M.A./M.B.A.

The only time a limited liability company is responsible for remitting federal income tax payments is if the members elect to treat it as a corporation for tax purposes. If the LLC members do not elect corporate tax treatment, each member is responsible for reporting a portion of the LLC's income and deductions. Regardless of how you classify the LLC for tax purposes, the business is eligible to deduct a wide range of business expenses.

Employee Salary

The amount of wages an LLC pays to employees is eligible for a tax deduction. Wages include all cash, property or services you provide in exchange for the employee’s services. Although you are free to pay an employee any amount of compensation, the IRS allows a deduction only for the portion that is reasonable under the circumstances. A determination of reasonableness balances the employee’s compensation with the complexity of the duties he performs, the amount of responsibility you give the employee, cost of living in the geographic area and the individual achievements of the employee.

Rent Expense

The amount the LLC pays to rent property it uses solely for business purposes is fully deductible against the LLC’s income. However, the amount of rent must be reasonable in comparison to comparable properties in the area. Deductible rent only includes the expense you incur during the tax year. If the LLC prepays the rent that is properly allocatable to a future tax year, the deduction is not available until that future year.

Ready to start your LLC? Start an LLC Online Now


You can deduct all advertising costs that directly relate to the promotion of the LLC’s business and for which you reasonably expect a future benefit. You must reduce the deduction for any portion of annual advertising that attempts to influence any governmental legislation, regardless of whether you expect a future benefit from the lobbying activities.

Start-Up Costs

The start-up costs you incur before the LLC is operational qualify for a tax deduction. These costs include expenses you incur to create or investigate the purchase of a business, such as initial marketing and training employees. Start-up costs are capital expenditures and subject to amortization deductions over a period no less than 180 months. However, the IRS allows the LLC to deduct up to $5,000 of start-up costs on the first tax return. You must reduce the $5,000 deduction by the amount of total start-up costs that exceed $50,000.

Casualty Loss

If the LLC suffers loss or damage to property as a result of a casualty, a portion of the loss may deductible. A casualty is any sudden and infrequent event, such as a tropical storm or car accident, that is capable of causing damage to property. The loss you can deduct on the business property is equal to the basis of the property less its salvage value, minus the amount of any reimbursement you receive from an insurance company. The basis represents the cost of the property reduced by the amount of prior depreciation deductions the LLC takes.

Ready to start your LLC? Start an LLC Online Now
Are LLC Startup Expenses Tax Deductible?


Related articles

Is a Health Insurance Premium Tax Deductible With LLC?

The Internal Revenue Service allows businesses to reduce taxable income by the amount of premiums it pays during the year to purchase health insurance for qualified individuals. A limited liability company is eligible to take the deduction. However, because LLCs are subject to various tax treatments, the type of taxation it is subject to dictates the eligibility requirements that must be met.

Can LLC Members Take a Salary?

Most state laws and federal tax regulations generally view an LLC member as an investor rather than an employee. This classification generally does not change when the member actively engages in management activities. Unless a member meets the requirements of a bona fide employee, any salary the LLC pays the member is deemed a profit distribution.

LLC & Ownership Liability

The owners, who are known as members, of a limited liability company often choose this business structure because it protects their personal assets that do not relate to the business. However, the members may be personally liable when their actions are outside the scope of the LLC; they are personally liable if they offer creditors personal repayment guarantees or make unauthorized decisions on behalf of the LLC.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

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

The IRS allows the taxpayer ultimately responsible for paying the tax on business income to take deductions for valid ...

What Can You Write Off on Taxes for an LLC?

The Internal Revenue Service treats LLCs differently for tax purposes than other types of entities insofar as members ...

Does LLC Mean Incorporated?

A limited liability company is a legal business entity similar to a corporation. Although formation requirements are ...

Compare the Tax Benefits of Sole Proprietorship Vs. Sub S Corporation

One of the most important decisions you make when starting your business is how you want to structure your business ...

Browse by category
Ready to Begin? GET STARTED