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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What Can an LLC Deduct?

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Sole Proprietorship Business Deductions

Despite the fact that a sole proprietorship isn’t treated as being a separate and distinct entity from its owner, the IRS still allows you as a sole proprietor to take advantage of the same business expense deductions that are available to other business entities, such as a corporation. However, many business deductions have specific requirements that you must satisfy before you can report them on a tax return, so it’s a good idea to familiarize yourself with some of the IRS rules.

Sole Proprietorship & Rent

A sole proprietorship is a popular form of business that refers to a single person who owns and operates a business. Since it is not a distinct legal entity, a sole proprietor does not need to file documentation with the state to form the business. Outside of taxes and filing for any licenses specific to its industry, a sole proprietorship does not need to file any paperwork with a state or federal organization. This ease of formation and maintenance are what make sole proprietorships so popular. This ease of formation does not relieve a sole proprietor for accounting for business expenses, such as rent.

Deduction Categories for a Sole Proprietor

A sole proprietorship is just a business owned by a single individual. The earnings, expenses, profits and losses of a business need to be reported on the individual owner’s state and federal tax returns. The Internal Revenue Service provides a form, Schedule C, for reporting business-related income and deductions. The IRS also provides the sole proprietor with several categories of tax deductions related to running the business and being self-employed.

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