LLC expenses cheat sheet: 14 deductible expenses and how to do write-offs

Interested in starting a small business but intimidated by the process of incorporating? Not sure if you’d make money after taxes? Worried about what might happen to your home or bank account if you end up in the red? 

The limited liability company might be just what you need. Designed to offer small business owners the same types of liability protection as large companies without many of the administrative requirements, LLCs simplify the process of starting and running a small business, either alone or with partners. 

In this guide, we’ll review the most common types of tax deductions available to LLCs and walk you through the write-off process. We’ll also dig into the tools and processes that help your small business keep accurate records so you enter tax season with confidence.

What are LLC expenses? 

A Limited Liability Company, or LLC, is a type of business structure that protects owners from being held personally responsible for the company’s debts. If the LLC owes money, for example, assets like the owner’s home or savings account are usually protected from creditors. 

Another key benefit of the LLC? Owners, called ‘members,’ can opt for the most beneficial tax structure. A single-member company could be taxed as a corporation, for example, if that means a lower tax bill. With the option to choose, however, comes potential confusion around deductions, which help many small businesses make the most efficient use of their capital.

LLC expenses are the costs you incur to get your company up and running, keep it operational, and help it generate revenue. Depending on what kind of business you’re in, these might include one-time costs like filing fees to create the LLC and ongoing costs like rent, office supplies, insurance, or employee wages. Fortunately, many LLC expenses are tax-deductible, which can help reduce your business’s overall taxable income.

Startup expenses  

Startup expenses are the initial costs you incur when setting up your LLC. These are sometimes called ‘one-time’ costs because, once you’re operational, you don’t need to worry about them again. Some examples of startup expenses include:

• Legal fees. You might hire a lawyer or other professional to help with the legal documents needed to register your LLC.
• Filing fees. Many states charge a fee to register a new company.
• Market research. You may need to conduct polls or surveys to refine your business plan before becoming operational.
• Prototype development and testing. If you plan to sell a product, you may need a sample to test your idea or attract investors.

Operational expenses 

Operational expenses are the costs associated with keeping your business in, well, business. Unlike startup costs, operational costs are recurring expenses, which is why they’re considered  ‘ongoing.’ Some typical operational expenses might be:

• Rent.  If your business requires a physical location, you may opt to rent an office, storefront, or restaurant rather than purchase real estate.
• Utilities. No matter what kind of business you run, you’ll need reliable access to electricity, water, and the internet.
• Office supplies. From pens and pencils to laptops and printers, most businesses need at least basic office supplies to keep good records and run efficiently.
• Software. Many businesses rely on monthly or annual subscriptions to software products. 

14 LLC tax write-offs: deductible expenses 

Understanding which business expenses your LLC can write off is critical for efficient growth and financial planning. When you correctly calculate deductions, your business usually realizes savings in the form of a reduced tax bill. That’s money you can use on projects designed to produce more revenue. 

Below, we list some of the most common tax deductions for LLCs. Remember, however, that LLCs can choose from three different tax statuses—sole proprietorship, corporation, or partnership—and not all deductions will apply in all circumstances. Check with a tax professional if you’re unsure. 

1. Payroll

If your business pays salaries, wages, or bonuses to W-2 employees, you can deduct those expenses. Compensation paid to 1099 contractors is also deductible. 

2. Startup costs

To ease the road to starting a new business, the IRS allows new LLCs to deduct $5,000 worth of expenses related to getting a new business off the ground for the first year of operation. If your startup expenses exceed $5,000, you can deduct part of the costs – up to $50,000 –over several years through a process called ‘amortization.’ 

3. Self-employment tax deduction

Owners of single-member LLCs end up shouldering the entire burden of Social Security and Medicare taxes. To lighten the load, the IRS allows single-member LLCs taxed as sole proprietors to deduct half of the cost. 

4. Employee benefits

The IRS considers many payroll tax deductions, including employee health insurance and retirement plan contributions, as “fringe benefits.” Employers can deduct these contributions from revenue to reduce their tax liability.

5. Home office expenses

If you use a portion of your home to operate your business, some of the costs associated with maintaining a dedicated workspace may qualify as write-offs. To claim the home office tax deduction, you’ll need to prove both that you operate primarily out of your home office and that you use the space exclusively for business. 

6. Rent

If your business rents a storefront, office, or other space that serves as your principal place of business, you may be eligible to deduct some or all of that cost. Note that if you operate primarily out of your home, you may use the home office deduction to offset related costs, like rent and utilities.

7. Insurance 

If you need to purchase insurance to protect yourself or your employees due to the nature of your business, such as liability or commercial auto insurance, you can usually deduct these costs. Sole proprietors who purchase health insurance for themselves or their families can also claim this deduction.  

8. Marketing and advertising

Almost all businesses, regardless of whether they sell superconductors, staplers, or services, will need to engage in promotional activities to generate demand. The costs of advertising and marketing initiatives, including billboards, Google ads, radio spots, and content campaigns, can be written off as an ordinary and necessary part of business.

9. Depreciation

Certain types of equipment and machinery can begin to lose value due to wear and tear. To offset this depreciation against the asset's value, you can file Form 4562 and claim up to $1.16 million in annual deductions for losses associated with business property. 

10. Utilities 

As mentioned above, almost every modern business needs electricity, water, and reliable internet. It doesn’t get more ordinary or necessary than keeping the lights on! If you’re a sole proprietor applying the home office deduction, subtract only the portion of your bills that applies to your business. Otherwise, you risk a penalty for claiming personal expenses on your company return.

11. Licensing 

Many businesses, from bars and beauty salons to law practices and accounting firms, require a license to operate. The fees to obtain and then maintain these licenses are tax-deductible and can be used to reduce your tax liability. 

12. Business travel 

If you or your employees regularly travel to attend conferences, meet with clients, or promote the company, you may be able to write off some or all of the associated costs. Provided your purchases aren’t “lavish” or unreasonable, you can usually deduct the cost of tickets, lodging, baggage shipping, and dry cleaning or laundry.

13. Business vehicle expenses 

You can deduct the total fuel, repair, and maintenance costs for any vehicle reserved exclusively for business use. Similar to the home-office deduction, however, you’ll need to calculate the percentage of expenses related exclusively to business-related travel if the vehicle also doubles as personal transportation.

14. Inventory 

“Non-incidental” inventory critical to your business operations may qualify as tax deductible. For example, if the inventory is vital to the core operation of your business and is regularly stocked and tracked, it could be considered “non-incidental.”

Non-deductible expenses for LLCs

Unfortunately, not all expenses related to your business qualify as tax deductible. Remember, the IRS only allows you to write off ordinary and necessary purchases that are common and accepted in your industry.

1. Personal expenses 

Only expenses directly related to your business activity qualify as tax deductible. A laptop to manage finances and communicate with clients will qualify. A smartwatch that connects to that laptop does not—unless you’re only using it for work.

2. Penalties and fines 

Federal law prohibits individuals and businesses from claiming deductions for fines and penalties incurred due to violating the law. One exception? Certain types of monetary restitution and settlements may qualify.

3. Commuting costs 

While an LLC can deduct the costs associated with travel to meet clients, deliver goods and services, and engage in other business activities, commuting costs are the responsibility of individual employees and are not deductible in the US. 

4. Childcare expenses 

The IRS considers childcare a personal, rather than business, expense. Employees and business owners can claim a Childcare and Dependent Care Tax Credit on their personal income tax returns to offset these costs.

5. Political contributions

Donations to political parties, campaigns, or candidates are not tax deductible and do not qualify as charitable contributions.  This applies even when the recipient’s success would have a meaningful impact on your business.

6. Entertainment costs 

Expenses like concert tickets or venue rentals, are typically not deductible. If your event has a clear business purpose, however, you can usually deduct 50% of the cost of food or catering.

7. Household expenses 

Unless you use a portion of your home to operate your business, household expenses like mortgage, utility, and rent payments don’t qualify as deductions. If you work from home, you may be able to claim deductions on some expenses proportionate to the amount of space devoted exclusively to your LLC.

How to write off LLC business expenses

Adding up your business revenues and expenses and calculating deductions might seem challenging, but breaking the process down into smaller steps can make things more manageable and allow for proper planning. Specialized expense management, accounting, and bookkeeping tools can also reduce the administrative load.

Step 1. Track and consider all the business expenses 

You can’t claim a deduction if you don’t have a record of the expense. Expense management software can help consolidate all the documentation you need to claim a deduction, like receipts and invoices, and can also divide your purchases into easy-to-understand expense categories, such as “travel” or “office supplies.”

Step 2. Identify available deductions for your LLC

Not all expenses qualify as tax deductions, so your next step is to review the expense categories from Step 1 and remove or adjust any that aren’t deductible. For example, if your business paid for meals, you can write off 50% of the cost under most circumstances, so you’ll probably divide those expenses in half before subtracting them from your income. Other expenses, like fines and penalties, aren’t deductible at all.

Step 3. Record major business purchases as depreciable assets

Big-ticket items like real estate, vehicles, and certain types of equipment, are considered capital expenditures rather than expenses. You should record these separately from other expenses because they receive different tax treatment. 

Step 4. Determine the type of tax deduction

Once you’ve separated your operating costs from your capital expenditures, classify each according to deduction type. Typically, you’ll use direct deductions to subtract operating costs from your income entirely. For larger purchases, like the capital expenditures discussed in Step 3, you’ll apply a depreciation deduction to spread the cost out over several years in a process called depreciation. Be aware that when your big purchase concerns an intangible asset, such as software or a patent, you’ll use another process called amortization to calculate your annual deduction.

Example: Widgets, Inc. generated gross income of $500,000 in 2024. The company also spent $50,000 marketing a new widget type and $150,000 on a new machine to speed up current widget production. The $50,000 of marketing expenses are part of the ordinary operation of the business and can be deducted immediately, which brings the company’s taxable income down to $450,000. The widget-making machine, however, will benefit the business for years to come and counts as a capital expenditure. Instead of deducting $150,000 from its 2024 revenues, Widget’s Inc. will deduct $10,000 per year for 15 years. 

Step 5. Apply deductions to taxable income

After totaling your revenues from all your business’s income streams, subtract your direct and depreciation deductions to find your taxable income.

Step 6. Prepare necessary tax forms

To officially claim your deductions and report your income, you’ll complete one of the following forms:

• Form 1120. Corporations use this form to report income or losses and claim credits or deductions.
• Form 1065. Multi-member LLCs, also known as partnerships, use this form to provide the IRS with information about income and claim deductions. 
• Schedule C. Sole proprietor LLCs don’t need to complete a separate business tax return. Instead, business owners attach this form to their personal tax returns to report business expenses and self-employment tax deductions.

4 best practices for submitting LLC taxes

Another way to make tax season less stressful? Build tax prep into your day-to-day business operations to avoid a last-minute scramble for documents and information.

1. Develop a filing system

To properly calculate your business income and any deductions, you’ll need easy access to invoices, payment records, receipts, and bank statements. Creating a system that keeps all this information organized, whether in hard copies or on the cloud, will make it much easier to confidently report your income and support any claimed deductions in the case of an audit.

2. Save funds for the tax season

While you can’t know for sure whether you’ll owe taxes on business revenues until you or your tax professional sit down to prepare the return, you can avoid the stress associated with an unexpected bill by planning in advance. Setting aside funds each month or quarter to pay taxes can offset this annual expense. 

3. Outsource 

As your business grows, preparing your tax return may become more challenging. In these cases, it can make sense to enlist the help of a professional to ensure that you don’t miss out on credits and deductions or make costly mistakes when calculating what you owe. 

Special considerations for LLC expenses in 2024

The Corporate Transparency Act, which came into effect in January 2024, requires all LLCs to report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a division of the US Department of the Treasury. While exceptions do exist, the vast majority of small businesses will need to submit documentation identifying any entity that exercises substantial control or owns more than 25% of the company.

Most companies have until January 1, 2025 to complete and file a BOI report electronically on the FinCEN website. Those that fail to do so may face stiff penalties, including a $500 fine for each day in violation.

How to manage LLC expenses

Effective spend management not only supports your LLC’s financial health, it streamlines tax preparation, too. By categorizing expenses and tracking them accurately, you’re better positioned to spot opportunities to claim deductions and reduce your taxable income.

1. Establish expense categories 

Dividing expenses into clear categories like “supplies,” “travel,” or “marketing” can help when it comes time to match purchases to specific tax deductions. You’ll also benefit from a straightforward, big-picture view of where your business spends money when budgeting and planning.

2. Define an expense policy 

Setting clear expectations around allowable expenses, reimbursements, and documentation requirements can help control employee spending and simplify tax preparation. Depending on the size of your business, you may need to set multiple expense policies for different departments or roles within your organization.

3. Implement expense tracking software 

Using spend management software can simplify how your company tracks spending and help with monitoring expenses for each part of the business. Understanding where and when your business makes major purchases can help you plan effectively or implement control measures. 

Rippling: easy expense management for your LLC

Rippling consolidates your company’s finances—from payroll and benefits to corporate cards and expense management–giving you an up-to-date view of cash flow across your company and offering unprecedented control over spending patterns.  

While most expense management solutions only allow for basic employee-manager approval chains, with Rippling expense management’s advanced policy engine, you can set hyper-custom policies based on the vendor, dollar amount, and expense category, helping you easily block out-of-policy expenses. You can also tee up automated workflows that help you control spend, like triggering an alert when a department’s expenses sharply increase. expense claims, receipts, and reimbursements are neatly organized and recorded in a general ledger and other accounting systems, your LLC has compliant documentation at the ready if the IRS or other regulatory agencies come knocking. 

With Rippling you can: 

• Automatically route expenses and bills to the right approver every time. 
• Flag out-of-policy spending with hyper-custom policies, like by vendor or value, for further review. 
• Close the books faster with AI-powered transaction categorization and integration with your accounting systems.

LLC expenses FAQs 

What is the difference between a deductible expense and a capital expenditure?

Deductible expenses are ordinary, necessary costs associated with doing business. You can subtract the entire cost from your taxable income for the year incurred. A capital expenditure, on the other hand, is a long-term investment that will benefit the business over several years, such as purchasing property or equipment. A capital expenditure can also reduce taxable income, but you’ll spread the cost over several years. 

Can LLCs write off retirement contributions?

Yes, some LLCs can deduct retirement contributions, depending on the type of plan. For LLCs taxed as sole proprietors, payments to a solo 401(k), SIMPLE IRA or SEP IRA are usually tax deductible. LLCs taxed as corporations may also be able to deduct their contributions as employee benefits.

What documentation is required to support LLC write-offs?

Documents needed to support tax write-offs for LLCs include records like receipts, invoices, and bank statements. For meals and travel, additional information about who attended and the purpose of the trip may also be required. 

Are professional fees, like accounting and legal costs, deductible?

Yes, fees paid to professionals like accountants, lawyers, and consultants are tax deductible.

This blog is based on information available to Rippling as of November 13, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.