Running a small business creates many expenses throughout the year. If you operate an LLC, you may be able to deduct qualifying business expenses when calculating your taxable business income.
Understanding LLC tax deductions, small business write-offs, deductible business expenses, and IRS business expense rules can help you avoid missing legitimate deductions while also avoiding expenses that are not allowed.
The basic IRS rule is that a business expense generally must be ordinary and necessary for carrying on the business. An ordinary expense is common and accepted in your industry, while a necessary expense is helpful and appropriate for your business.
Common Small Business Expenses You May Be Able to Deduct
The exact deductions available depend on the type of business, how the business is taxed, and how an expense is used. Common small business tax deductions include:
1. Advertising and Marketing
Advertising expenses are generally deductible when they are ordinary and necessary business expenses.
Examples include:
- Google Ads and online advertising
- Facebook and Instagram advertising
- Website advertising
- Business flyers and brochures
- Business cards
- Promotional materials
- SEO services
- Website marketing
- Sponsored posts
- Trade show advertising
- Promotional products
Advertising is one of the most common small business tax write-offs.
2. Website and Online Business Expenses
Many modern businesses have significant online expenses.
Potential deductible expenses can include:
- Website hosting
- Domain registration
- Website design
- Website maintenance
- Business software
- Accounting software
- Email services
- Cloud storage
- Online subscriptions
- E-commerce platform fees
- Payment processing fees
- Business-related apps
Keep invoices, receipts, and payment records showing that the expense was related to the business.
3. Office Supplies and Business Supplies
Small businesses can generally deduct ordinary and necessary supplies used to operate the business.
Examples include:
- Paper
- Printer ink
- Shipping supplies
- Packaging
- Pens and notebooks
- Computer accessories
- Business forms
- Product supplies
- Cleaning supplies used for the business
- Tools and small equipment
For businesses that manufacture or sell products, inventory and materials can have different tax treatment from ordinary operating expenses, so they should be tracked separately.
4. Business Equipment and Computers
Computers, printers, machinery, furniture, tools, and other equipment used in a business may qualify for a deduction.
However, an expensive asset may not always be treated like an ordinary supply expense. Depending on the circumstances, the cost may need to be depreciated or may qualify for a special deduction such as Section 179.
The IRS generally requires businesses to maintain records showing when an asset was purchased, its cost, how it was used, and depreciation or other deductions claimed.
5. Business Insurance
Business insurance can be an important LLC business expense deduction.
Depending on the business, potentially deductible insurance costs may include:
- General liability insurance
- Professional liability insurance
- Commercial property insurance
- Business vehicle insurance
- Workers’ compensation insurance
- Other insurance directly related to the business
Personal insurance expenses generally cannot simply be classified as business expenses.
6. Legal and Professional Fees
Professional services used to operate a business may qualify as deductible business expenses.
Examples include:
- Accountant fees
- Tax preparation fees
- Business attorney fees
- Bookkeeping services
- Business consultants
- Payroll services
- Tax advisory services
The expense should be connected to the business rather than personal activities.
7. Contractor and Employee Costs
A business may have deductible costs associated with employees and independent contractors.
Examples can include:
- Wages
- Salaries
- Employer payroll taxes
- Certain employee benefits
- Independent contractor payments
- Temporary labor
- Professional freelance services
Businesses should properly classify workers as employees or independent contractors because different tax and reporting rules apply.
8. Business Vehicle and Mileage Expenses
Vehicle expenses are another major category of small business tax deductions.
Depending on the situation, a business may be able to deduct qualifying business transportation expenses using an applicable IRS method.
Business driving can include trips such as:
- Visiting customers
- Traveling between business locations
- Going to business meetings
- Traveling to temporary work locations
- Other qualifying business transportation
Personal driving is not deductible simply because the vehicle is owned by an LLC. Business and personal use must be properly separated.
Keep a mileage log and supporting records when claiming vehicle-related deductions.
9. Business Travel
Qualifying business travel expenses may include transportation, lodging, and other necessary travel costs when traveling away from the taxpayer’s tax home for business.
Examples can include:
- Airfare
- Hotels
- Rental cars
- Taxis
- Parking
- Tolls
- Certain business travel meals
Travel expenses must meet IRS requirements and must be business-related. Personal vacations are not converted into deductible business trips simply because some business activity occurs during the trip.
10. Business Meals
Business meals have specific rules.
In many qualifying situations, only a portion of the meal expense is deductible. For example, IRS Schedule C instructions generally provide a 50% limitation for qualifying business meals.
Keep the receipt and document:
- Date
- Amount
- Location
- Business purpose
- People involved
Entertainment expenses should not automatically be treated as deductible business meals.
11. Business Use of Your Home
If you operate a business from your home, you may qualify for a home office deduction.
However, there are specific requirements. In many cases, the portion of the home must be used exclusively and regularly for business and meet the applicable IRS requirements.
Potential expenses can include a qualifying business portion of:
- Rent
- Mortgage interest
- Utilities
- Property taxes
- Homeowners insurance
- Repairs and maintenance
- Depreciation
Not every person who works from home qualifies for the home office deduction.
12. Business Bank Fees and Credit Card Fees
Fees directly associated with business financial accounts can potentially be deductible.
Examples include:
- Business checking account fees
- Business credit card fees
- Merchant processing fees
- Payment processing charges
- Wire transfer fees
- Certain business loan fees
Keeping business and personal accounts separate also makes bookkeeping and tax preparation much easier. The IRS recommends maintaining records that clearly identify business transactions.
13. Business Loan Interest
Interest on money borrowed for legitimate business purposes may qualify as a business deduction, subject to applicable tax rules and limitations.
Examples include interest associated with:
- Business loans
- Business lines of credit
- Certain business credit cards
- Financing used to purchase business assets
The principal amount of a loan is generally not itself a business expense.
14. Rent and Business Property
If a business rents an office, storefront, warehouse, studio, or other property for business purposes, qualifying rent may be deductible.
Businesses should keep copies of:
- Lease agreements
- Rent statements
- Payment records
- Receipts
15. Education and Training
Certain education and training expenses may qualify when they maintain or improve skills required in the taxpayer’s existing business or meet other IRS requirements.
Examples can include:
- Industry courses
- Professional training
- Business conferences
- Certain seminars
- Continuing education
- Trade publications
Education that qualifies someone for a completely new trade or business can have different tax treatment.
What About LLC Formation Costs?
Starting an LLC can involve expenses such as:
- State filing fees
- Legal fees
- Accounting fees
- Business planning
- Advertising before opening
- Organizational expenses
Startup and organizational costs have special federal tax rules. The IRS states that qualifying taxpayers may generally elect to deduct up to $5,000 of certain startup costs and up to $5,000 of organizational costs, subject to the applicable $50,000 reduction thresholds, with remaining amounts generally amortized.
Because startup expenses have special rules, they should be tracked separately from normal operating expenses.
What Small Business Expenses Are NOT Deductible?
Not everything purchased by a business owner is a business tax deduction.
Generally, personal expenses are not deductible simply because they were paid from a business bank account.
Examples can include:
- Personal groceries
- Personal clothing
- Family vacations
- Personal entertainment
- Personal household expenses
- Personal portions of mixed-use expenses
- Personal vehicle use
The IRS specifically states that personal, living, and family expenses generally aren’t deductible. When an expense has both business and personal use, the business portion generally must be separated from the personal portion.
Does Having an LLC Automatically Give You More Tax Deductions?
No.
An LLC is a legal business structure, but LLC tax treatment depends on how the LLC is taxed. A single-member LLC may generally be treated differently from an LLC taxed as an S corporation or partnership.
The important question is not simply whether you have an LLC. The business expense must qualify under the applicable federal tax rules.
How to Keep Track of Small Business Tax Deductions
Good recordkeeping is one of the most important parts of claiming business expenses.
Keep:
- Receipts
- Invoices
- Bank statements
- Credit card statements
- Mileage records
- Business contracts
- Purchase records
- Loan documents
- Asset records
- Payroll records
- Contractor records
The IRS says supporting documents should establish information such as the payee, amount paid, date, proof of payment, and description of the business expense.
A separate business bank account can also make it easier to identify business income and expenses.
Keep Business and Personal Expenses Separate
One of the simplest ways to improve small business bookkeeping is to avoid mixing personal and business transactions.
If a purchase is partly business and partly personal, only the qualifying business portion should generally be treated as a business expense.
For example, if a phone, vehicle, computer, or internet connection is used for both business and personal purposes, appropriate records should be maintained to determine the deductible business portion.
Common Small Business Tax Write-Offs Checklist
Depending on your business and circumstances, your annual tax deduction checklist may include:
- Advertising
- Marketing
- Website expenses
- Software subscriptions
- Office supplies
- Business equipment
- Insurance
- Legal fees
- Accounting fees
- Bookkeeping
- Contractor payments
- Employee wages
- Payroll expenses
- Business vehicle expenses
- Business mileage
- Parking and tolls
- Business travel
- Qualifying business meals
- Business rent
- Utilities
- Business bank fees
- Payment processing fees
- Business loan interest
- Home office expenses
- Startup costs
- Depreciation
- Other ordinary and necessary business expenses
The goal of business tax deductions is not to find as many expenses as possible. The goal is to properly identify legitimate ordinary and necessary business expenses, document them, and claim the deductions allowed under the tax rules that apply to your business.
Good bookkeeping throughout the year can make it much easier to identify LLC tax deductions, small business tax write-offs, Schedule C expenses, self-employed deductions, business expenses, and other potential tax deductions when preparing your federal tax return.