What Are Some Tax Deductions I Get With an LLC?

By Anaid Heyd

Limited Liability Companies (LLC) can benefit from a variety of tax deduction incentives that help save significant amounts of money and encourage the creation of employee enrichment programs. Deductions also help smaller businesses function in their initial stages by reimbursing home-based business expenses or business-related travel. Knowledge of such deductions can help LLCs thrive in any economy.

Charitable Donations

LLCs can deduct donations given to a charitable organization for up to 10 percent of its taxable income. Any contributions made over that amount may be carried over for up to five years. Charitable organizations must have a 501(c)(3) non-profit tax status from the IRS.

Home-Office

A home-office deduction allows a LLC owner to deduct her home's utilities, phone service, mortgage interest, real estate taxes, rent, depreciation costs, insurance and domestic help wages, if certain conditions are met. Receiving the deduction depends on how you conduct your business at home. Your business must exclusively take place in a certain portion of your home, where you conduct nothing but business in such location. The deduction amount depends on the percentage your office space takes up in your home. For example, an office that takes up 15 percent of your home allows 15 percent of your home maintenance expenses to be deducted.

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Ordinary and Necessary Expenses

The IRS allows LLCs to deduct normal business expenses only if they are deemed both ordinary and necessary. Expenses must not be indispensable, but determined as expenses commonly incurred in the field. Such expenses can include the cost of transportation, consulting services, accounting, attorney fees, alarm system, cleaning, long-distance phone service, office supplies, repairs, maintenance, shipping supplies, postage, financial services, furniture, travel, entertainment and payroll. Most expenses are 100 percent deductible, but special conditions apply to entertainment and travel fees.

Business Automobile

LLCs can deduct the cost the mileage incurred while performing business-related tasks. An automobile, however, must be engaged in job-related activities that do not include travel between an individual's home and work site. The deduction can include reimbursed travel costs to an employee or executive, but must abide by the mileage rate regulations approved by the IRS. Mileage rates will vary every year. In 2010, the business mileage rate was set at 50 cents a mile.

Education

LLCs can also deduct education expenses incurred to maintain or improve an employee's skills. The limit to such expense is $5,250. The limit has been set in place since 1986. Education cost may include tuition, fees, equipment, supplies and books. Employees receiving education benefit must not be members of the LLC partnership or their relatives.

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Sole Proprietorship Business Deductions
 

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Related articles

Can a Sole Proprietor Write Off a Home Office?

Running a business as a sole proprietor means that, for tax purposes, you and the business are one and the same. You pay taxes on the business income just as you would as an individual, and the income is reported on the tax return you file every year. The IRS allows the same expense deductions you would normally take as a self-employed individual working at home.

Depreciation in a Sole Proprietorship

A sole proprietorship is a form of unincorporated business that acts as an alter ego of the owner and reports its related business income or losses on the owner's individual income tax return. Like other forms of business, it can claim ordinary and necessary business expenses as tax deductions, including depreciation.

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 can choose the type of taxation to apply. The LLC is not liable for federal income taxes unless you elect to treat it as a corporation. Otherwise, the members are each responsible for a portion of the tax. However, the same business deductions available to a corporation are available to the individual members on a pro-rata basis.

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