Your LLC and the tax man

You started a business and decided to form an LLC.  The legal protections LLCs offer over a sole proprietorship are worth the couple hundred bucks you spent, and now you’re up and running and are starting to gain traction.  Revenue is coming in and you’re profitable.  Therefore, the tax man is around the corner.  Do you have a LLC tax deductions list handy to help you pay less tax?

How LLCs are taxed

It is perhaps a good idea to discuss the LLC structure from a tax perspective before we get into the list,.  There are three ways LLCs can be taxed:

1. Disregarded entity – there is only one member/owner of the LLC and the income of the LLC passes through to the owner’s individual tax return.
2. Partnership – two or more members are considered partners of an LLC.  The Partnership files an informational return, Form 1065, with the IRS and issues a K1 to each partner.  The K1 has each partner’s share of the partnership’s profits or losses.  Each partner reports the K1 income on the partner’s tax return.  The Partnership LLC is a passthrough entity, much like a disregarded entity.
3. Corporation – an LLC may elect to be treated as either a Corporation by filling out Form 8832 or S-Corporation by filling out Form 2553.  S-Corporations will be discussed in a separate blog.  Corporations are taxed on their profits, and shareholders are taxed on their distributive income as well. Double taxation is generally not preferred, but we will discuss in a future post when the corporate entity actually saves money on taxes, even with the double taxation.

LLC tax deductions list

This list is a list, and the details are ignored.  The list is not all inclusive, either.  If you have questions about the details, or you wonder if something can be deducted, you can give us a call, schedule a free consultation, or check out the IRS website.  Let’s get to it.

1. Rent and Utilities
2. Cost of goods sold
3. Employees’ pay
4. Education expenses
5. Fringe benefits
6. Reimbursements for business expenses incurred by you or your employees
7. Interest
8. Certain taxes
9. Certain insurance premiums
10. Start-up costs, but they’re limited
11. Repair and Maintenance costs
12. Bad debt
13. Travel, meals and entertainment
14. Advertising
15. Certain car and truck expenses
16. Charitable contributions
17. Credit card convenience/merchant fees
18. Business and trade associations
19. Legal and professional fees
20. Licenses and regulatory fees
21. Repayments of previously recorded income
22. Supplies

The LLC tax deductions list above gives you a good start to decrease your taxable income.  Again, it is not meant to be tax advice.  There are a lot of details and circumstances that can affect whether something is a deductible expense.