If you are reading this post chances are you are either thinking of starting an LLC or you’ve already started one. Because of that, I want to discuss the top 5 tax write-offs for your LLC. Write-offs are important and you need to know what you qualify for and how to write them off. Below I have listed 5 write-offs that I believe would be the most important and common write-offs you will encounter. Here’s a good video if you’re interested in more information about tax write-offs.
Top 5 Tax Write-offs for your LLC
Home Office Deduction
The home office deduction has to be the most common write-off for new LLCs. It can apply to almost everyone and it allows you to write off personal expenses as business expenses. The cost of any workspace you use exclusively for your business can be deducted as a home office expense.
This deduction can get complicated because you’ll be on an honor system when you file this on your taxes. There are two ways to deduct your taxes, standard or simplified method. Both have their advantages and disadvantages. Let’s start with the standard method. Which requires you to calculate your actual home office expenses and keep detailed records in the event of an audit. Now the simplified option lets you multiply an IRS-determined rate by your home office square footage. Whichever one you decide to go with depends on your specific situation.
Now, regardless of whether you claim the home office deduction, you can deduct the business portion of your phone bill. To keep it simple, this is according to the IRS website, “You can’t deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home.”
So, to sum that up if 80% of the usage of your cellphone is for business purposes, you can only write off 80% of the cellphone and monthly service on your tax return. Simple enough right?
Another everyday expense you can deduct is your vehicle. But again, it’s not as simple as you might think. You can calculate your deduction using either the standard mileage rate determined annually by the IRS or your actual expenses. The standard mileage rates are 57.5 cents per mile in 2020 and 56 cents per mile in 2021.
There are two ways to go about this you can take the actual expenses or standard mileage. From what I’ve seen, in some cases, it’s better to take the actual expenses. While in other cases, the standard mileage rate is more beneficial. The bottom line here is, that you should keep track of your business miles, your overall mileage for the year, and your vehicle expenses. That way when the IRS comes calling you are ready.
This is my personal favorite one. Only because I love to eat. With that said, a meal is a tax-deductible business expense when you are traveling for business, at a business conference, or entertaining a client. That can get a little murky, so let’s break it down.
The way the deduction worked in the past was that your meal could not be lavish or extravagant under the circumstances. In the past, you could only deduct 50% of the meal’s actual cost if you keep your receipts. In other words 50% of the standard meal allowance. That is if you keep records of the time, place, and business purpose of your travel but not your actual meal receipts.
As of recently, the deduction has been amended, according to the Consolidated Appropriations Act, 2021, H.R. 133, Temporary allowance of a full deduction for business meals. This allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020, and expires at the end of 2022.
I get it that was a lot of jargon that you probably didn’t understand. But to keep it simple now you can deduct 100% of your meals bought at a restaurant under your business can be deducted.
So there you have it, those are my top 5 tax write-offs for your LLC. This is an exhaustive list so do your research and look up more things you can write off. The more you know the more you can take advantage of your LLC. There are a lot of good resources out there, find them and use them. It will only benefit you in the long run. I hope this article was informative and helped you with your future endeavors in business. Happy Hunting!
Additional articles that you might be interested in regarding LLCs, S Corps, and C Corps.