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Seven Common Tax Deductions for LLCs You Should Know

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Limited Liability Companies (LLCs) are one of the most popular business structures in the country, thanks to their pass-through tax status

February 14, 2024
Author: NCH

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 Unlike corporations, LLCs don’t have to pay corporate taxes. Anything the company earns or loses goes to its owners, who must include them in their tax filings. But aside from this, LLCs can also make several tax deductions. 

If you want to learn how to reduce your LLC’s tax liabilities further, you’ve come to the right place. 

This blog will discuss the seven tax deductions LLCs should know about and how to make the most of them. Read on to learn how to reduce your taxes this coming tax season.

Seven Tax Deductions For LLCs 

If you want to reduce your tax liabilities but don’t know where to start, here are seven write-offs you can make according to the IRS:

Self-Employment Tax Deduction

The self-employment tax deduction is one of the major write-offs that LLCs can make. Sole owners of LLCs must pay the full cost of self-employment tax, which is 1.53% as of January 2024. This rate already includes taxes for Medicare and Social Security. 

Fortunately, the IRS allows LLC owners like you to deduct half of that amount, or 7.65%, from your net income. 

Business Meals

LLC owners can deduct up to 50% of their business meals from their filing. So, if you plan on meeting with potential partners and other business contacts, it would be best to conduct them over lunch. 

Phone & Internet

You can deduct the cost of your phone and internet bills as long as they are used for business purposes. But if you’re still using your home’s phone and internet line to conduct business, you can only deduct a portion of your bills from your taxes. 

Healthcare Premiums

Any out-of-pocket payments you’ve made for your healthcare premium can be claimed as a tax deduction. But to qualify for this write-off, you must be a sole proprietor, a partner in a partnership, a co-owner of an LLC, or a shareholder in an S-corporation with more than 2% stocks.

Those enrolled in the federal government’s Small Business Health Options Program (SHOP) could also receive a Small Business Health Care Tax Credit.

Business Startup Costs

If your LLC is relatively new, you can deduct some of your startup costs from your taxes. But there’s a limit to what you can claim during your first year of operations. 

For example, if you spent $50,000 in startup costs, you can only claim up to $5,000 in deductions. It’s important to note that this limit only applies to expenses worth $50,000 or less. 

Once your startup costs exceed the $50,000 limit, your deductions will be reduced by the exceeding amount. So, if your total expenses are around $55,000, you’ll lose the write-off entirely. 

The good news is that starting your second year of operations, you can deduct your startup costs in equal installments for the next 15 years.

Legal & Professional Fees

Starting and running an LLC on your own is not easy. Most entrepreneurs hire professionals like accountants, business lawyers, and tax experts to help them keep their businesses up and running. 

If you’ve hired one of them to help you incorporate your LLC or file your taxes, you can deduct their legal and professional fees from your taxes. 

Car Mileage

Car mileage is another write-off that a lot of LLC owners forget about. If you have a company car you typically use for business travel, you can deduct the entire cost of the miles you’ve driven, parking fees, and fuel from your taxable income. 

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But, if you use your personal car to meet with potential clients, you have to calculate what percentage of your vehicle’s mileage was used for business. 

There are two ways you can calculate your deductible. One is multiplying the miles you drove for business by the standard deduction rate of 66.5 cents for the 2023 tax year. 

The second is to use the actual expense method, where you multiply all your car-related expenses by your total mileage for the year.

How to Maximize Your LLC’s Tax Deductions

When reducing your tax liability, knowing which tax deductions your LLC can make is only half the battle. Here are a few other things that you can do to maximize your write-offs:

Compile your receipts

Excellent record-keeping is the first step to maximizing your LLC’s tax deductions. Compile all of your receipts into one place and organize them depending on what kind of expense they qualify as. This way, you can itemize all the write-offs you can claim when the new tax season comes.

If you can, make copies of your transactions to have a backup plan in case you lose the original documents. 

Look out for new deductibles

Aside from the seven tax deductions we’ve mentioned earlier, there are several other write-offs that you can include in your next filing. Before preparing for your next filing, look for any new deductible or tax credit your LLC might qualify for. 

Plan ahead

Proactive tax planning is the key to making the most of your LLC’s tax deductions. By making tax planning a routine affair, you’ll identify potential deductions and tax credits that you can use to reduce your tax liabilities. 

Furthermore, tax planning allows you to develop a tax-filing strategy that ensures you won’t miss any important filing deadlines. This way, you can lessen your taxes and keep your LLC tax-compliant. 

Consult A Tax Expert Today

With so many write-offs to make, keeping track of them while you manage a company can be challenging. But the good news is that you don’t have to do it alone. If you need help keeping track of your LLC’s tax deductions, NCH’s tax experts are here for you. 

NCH is one of Nevada’s leading business formation service providers, offering tax consultation and planning services. Our tax experts will help you maximize your LLC’s deductions and ensure its compliance with tax regulations. 

With years of experience in the field, our team understands that no business is the same. We are committed to providing personalized solutions tailored to your needs and goals. 

Let our experienced tax experts guide your LLC toward financial success. 

To learn more about our services, visit our website here or call us at 1-800-508-1729.

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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