LLC, US LLC, LLC Names for 2024

US LLC Tax Deduction Cheat Sheet and Workaround: How to Legally Reduce Tax

Napoleon

Jan 31, 2024 — 4 min read

People are searching for ways to evade taxes in the US every day. This indicates most entrepreneurs are looking for tax loopholes that would help them maximize their profits. As most of them wish to avoid taxes, it's not practical and may get them in the tax authorities' bad books. Additionally, evading tax as a growing LLC could lead to penalties.

Preparing taxes for an LLC can be hard and expensive. How do you reduce tax liability and pocket more profits? Well, this blog provides an LLC tax deduction cheat sheet. You can explore and learn ways to snatch money off your tax bill whether you're an LLC start-up or have been trading for years.

Understanding LLC Tax Deduction in the US

When incorporating an LLC in the US, it's crucial to understand its tax implications; the main advantage of a US LLC is pass-through taxation. This means the business does not incur taxes; its profits and losses are transferred to the owners, who then report these on their tax returns.

Regarding LLC taxes, the members report the money they earn from the business, any allowed expense reductions, and credits on their personal tax forms. This makes it easier for small business owners when they file their yearly taxes. More so, an LLC offers several tax benefits, like deducting company expenses and benefits from the tax write-off, reducing the tax burden for your company.

Additionally, LLC owners can choose a tax status. You have an option of electing to be taxed as a corporation. However, you're required to make the election with the IRS.

Tax Forms that LLCs are Required to File

You may be operating an LLC but unsure which form to file. You must file an annual tax return as an LLC using IRS Form 165. However, you don't need to file a different federal tax for your LLC since you report income and expenses on your personal tax return. It is crucial to keep all your LLC income and expense records to report financial information on your individual tax return accurately.

Let's check LLC classification and their tax Form.

Single members LLC: This is an LLC with one member. The profit is passed through the LLC owner tax return on Form 1040 Schedule C, and you pay yourself.
Partnerships: an LLC with two members and above is taxed as a partnership. The members must file Form 1065 with the IRS. Then, the IRS reviews the form and checks whether the partners have reported the income correctly. Partnerships are also provided as Schedule K-1 to the IRS. Then, the IRS breaks down business profits and losses per partner's share. Each partner must then report their profit loss details on a separate 1040 tax return.
Corporations: if you wish to elect your LLC to be taxed as a corporation, use IRS election Form 8832. You can choose your LLC to be taxed as an S-corporation or a C-corporation

LLC Tax Deduction Cheat Sheet

The LLC tax write-offs are calculated depending on the tax-deductible expenses. This also includes any expense directly related to the company operations. For instance, if you use your car for company purposes, you should deduct some expenses from your taxes.

But remember, the expense must be ordinary and necessary for the business. You should separate your personal expenses from those related to your company when filing for business taxes. You must accurately calculate and file all eligible deductions to maximize the tax write-off and minimize the tax liability.

Deduction	Description	Form
Company start-up cost	Expenses you incur when starting a business	Form Schedule C
Advertising	Expenses you incur when promoting your company	Form 1099-MISC
Business meals	Entertainment and meal expenses related to company activities	Form 1040
Business interest	Interest paid on company loans	Form Schedule C
Contractor labor	Expenses paid to contractors for their services	Form Schedule C
Bad debt	These are uncollectable debts	Form 1040
Depreciation	This is the tearwear of company property	Form 4562
Insurance	Expenses incurred paying for insurance premiums	Form Schedule C
Professional and legal fees	This is the money you pay professionals like accountants and lawyers for company-related services.	Form Schedule C
Charity contributions	Donations you make to charitable organizations	Form 1040
Employees salary and benefits	The money you spend on employees' Salaries, wages and benefits	Form WW-2
Home office	Expense for using your home for company purposes	Form 8811
Utilities	Expenses for your company utility bills like gas, electricity, and water	Form Schedule C

How to Workaround Business Expenses

LLCs can benefit from numerous business expenses and tax deductions. You should use deductions and write-offs to lower your taxable LLC income. Additionally, when you have an LLC, you will benefit from tax advantages like profit allocation flexibility among partners.

Let's check major tax workaround and deductions you may apply:

Category	Deductible expenses
Business expenses	Lease payments or office rent Utilities like water, gas, electricity, etc Home office expense Company supplies and equipment Phone and internet services Business meals Postage and shipping fee Insurance premiums Office repair and maintenance
Employee benefits and salaries	Employees salaries and wages Employee benefits like retirement plan contributions, health insurance Employers' payroll taxes shares, for example, social security
Costs of goods sold	Includes cost of goods purchased and sold or the storing inventory expenses
Travel and meals	Business travel expenses Deductions for meals which should be limited to 50% of the cost of company-related meals
Depreciation and amortization	Depreciation of company assets like machinery Amortization of intangible business assets like trademarks and patents
Home office deductions	A portion of rent interest Home maintenance expenses
Professional services	Money paid to professionals like consultants and accountants related to the company
Vehicle expenses	Business vehicle expenses, including fuel mileage maintenance, etc
Marketing and advertising	The costs associated with campaigns like marketing and advertising, including web development, print, materials, and online advertising
Bad debts	Uncollectable goods and services
State and local taxes	All taxes such as sales tax, state income tax, business property tax
Education and training	Costs associated with training and education of employers
Miscellaneous expenses	Other business-related expenses

Final verdict

To maximize tax savings for your LLC, carefully consider the above deductions. They are legal ways to minimize your tax liability and maximize your profits. Differentiate between business and personal expenses, knowing the rules for each. For instance, you should deduct some costs if you use your car for business. Having a dedicated home office may qualify for a deduction. Keep a record of all your expenses to help you claim deductions correctly. If you have any question, or need advise on LLC tax, reach out to Foundeck today.