When it comes to managing the finances of a new business, every dollar saved counts. As a new business owner operating as a Limited Liability Company (LLC), it’s crucial to take advantage of all available tax deductions to minimize your tax liability. While many business owners are aware of common deductions, there are several lesser-known tax write-offs that often go unnoticed. In this article, we will uncover the top five tax write-offs for LLCs that are frequently forgotten, helping you maximize your deductions and keep more money in your pocket.
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Home Office Expenses
One of the commonly overlooked deductions for LLC owners is the home office expense. If you use a dedicated space in your home for business purposes, you can claim a portion of your home-related expenses as a deduction. These expenses may include rent or mortgage interest, property taxes, utilities, and even maintenance costs. Be sure to keep accurate records and calculate the percentage of your home that is used exclusively for business.
Starting a new business involves numerous expenses, and many new LLC owners forget that these startup costs can be deducted. While not all startup expenses can be written off immediately, you can usually deduct up to $5,000 in the first year. These costs can include market research, legal fees, advertising expenses, and costs associated with setting up your LLC. Any remaining costs can be amortized and deducted over a period of 180 months.
As a new LLC owner, you may rely on various professional services to help run your business smoothly. This can include fees paid to lawyers, accountants, consultants, or any other professionals hired to assist with specific tasks. These service fees are tax-deductible and can help offset your overall tax liability. It’s important to maintain accurate records of all payments made to these professionals.
Continuing Education and Training
Investing in your professional development is crucial for the growth of your business. The good news is that expenses related to continuing education and training programs can be claimed as tax write-offs. Whether it’s attending workshops, conferences, or online courses directly related to your business or industry, these expenses are deductible. Remember to keep records of the costs incurred, including registration fees, travel expenses, and course materials.
While retirement may seem far off when you’re starting a new business, it’s never too early to plan for your future. As an LLC owner, you have the opportunity to contribute to retirement plans with tax advantages. Contributions to retirement accounts such as a Simplified Employee Pension (SEP) IRA or a Solo 401(k) are tax-deductible. By contributing to these plans, you not only secure your financial future but also reduce your taxable income in the current year.
As a new LLC owner, it’s essential to be aware of all the tax deductions available to you. By remembering and utilizing these often-forgotten write-offs, you can significantly reduce your tax burden and increase your business’s profitability. Don’t overlook the benefits of deducting home office expenses, startup costs, professional services, continuing education expenses, and retirement contributions. Keeping accurate records and seeking professional advice can further ensure you maximize your tax deductions and keep more money in your business. Take advantage of these often-overlooked tax write-offs and put your LLC on a path towards financial success.
What are the top five write-offs for LLCs that most business owners forget? And I think this is especially for new business owners. In fact, this question could be asked another way. What write-offs are available for LLCs that new business owners may not know about? Well, here are the top five that I have identified.
You can buy any tools you need to get your business done. So that is going to be smartphone devices, computer hardware, accessories, anything that adds efficiency to what you are doing. In my business, for example, I have invested in high-quality, high-speed ergonomic keyboards, mice, quality microphones, lighting, a very large monitor, so that I can have… three, four, five, six documents up on my desk. My monitor is almost as big as my desk. These are investments that you can deduct 100% when you are a small business owner, as long as they are tools that help your business.
Any sort of software that makes your system go quicker. I use a lot of software unique to my practice that adds efficiency. And this includes iPhone apps and whatever software you can use to simplify your keystrokes, shorten what you are doing.
For example, I use TextExpander. TextExpander is a tool that allows me to type in just a few letters, and it will fill out a full line of text, whatever I ask it to be. For example, if I need to type in the full date, I can just type in three characters, and the new date will come up.
Third, so these are write-offs for LLCs that most new business owners may not know about or would forget. Education. This one. Any sort of training, books, online courses, any sort of paid program that you go to improve your effectiveness, your skills, any coaches or consultants. It is just an incredible opportunity to invest in yourself. And so a lot of times, you are already, as an employee somewhere else, making these investments in yourself, and now they are tax deductible when you own a business.
Fourth: Brand Building
What is this? This is the cost associated with building your personal brand. It could be stuff as simple as upgrading your account from a free account to a paid account for something. You know, like YouTube premium, Twitter Blue, which allows you to add longer videos. Maybe it is pay-per-click remarketing. What is that? That is when people who express interest in your business go to your website, and then they leave. And for the next 30 days, you can have your ads continue to show up for those people who have already expressed interest in your business at your website. And those ads show up on other sites like Google. So that is called remarketing or retargeting. It is a specific way to continue to stay on the mind of somebody who is already shown an interest in you.
And it is extremely inexpensive because if you have a hundred people, you are paying for a hundred ads. And usually, it is a fraction of a petty per ad unless they click on it. And then a click maybe 10 cents or 25 cents. So that brand building is a very inexpensive way to grow your company and your brand, your personal brand. Even if you later benefit from that personal brand by getting a great job at a great company. So, that is an expense you had to pay on your own before you owned a company, and now that you own a company, it can be a tax-deductible business expense.
Fifth: Travel, Meals, and Entertainment
Now, this is an area that the IRS keeps a little bit of an eye on. And there is some rules on how to handle this. For example, if you go on a trip and you spend the whole time with your family at Disney World, that is not going to be deductible as a business expense. But if you go on a trip and a majority of the time is spent on business purposes, and then you had some leisure days as well. That is tax deductible for you. And if your family members are employees and they are participating in the business aspects of it, it is tax deductible for them as well.
All of these ideas you will want to run by a CPA. There is one guiding rule that you should keep in mind with it. The IRS says the expense needs to be ordinary and necessary. So in other words, you can’t, for example, be running a dog-walking business and taking travel to other continents throughout the year. That makes no sense. If it is a local dog walking business, it won’t make sense that you are doing international travel.
But, if you are a public speaker speaking on issues of international relevance, and you are traveling for that and getting per diems and payments for your speeches, of course, it would make sense. And, of course, you can do some retreats from time to time with your staff. And if your family members are your staff, they are welcome to go on those retreats.
If you set up an S Corp, or if you have an LLC taxed as an S Corp, you most likely can deduct your health insurance premiums. That can be fairly significant. So these are all items to discuss with a CPA.
Is It Worth Having a CPA?
I find it is worth it for three reasons. First, they usually save you more money than they cost. Second, you get incredible peace of mind knowing that when you use a CPA, you can rely on them and you are not accidentally violating the law, and the third reason is a reason most people are not aware of. When you rely on the advice of a licensed professional, so a CPA or an attorney in a tax question, if that reliance later turns out to be wrong and you actually owe money on the taxes, It is an important defense to any sort of, tax fraud crime that you relied on the advice of a licensed professional. So and I don’t mean bookkeepers, a lot of people out there are not licensed CPAs or licensed attorneys. It is important that this be a licensed individual. And I would recommend keeping a record of the question that you asked so that if there ever is an audit and the advice was wrong, at least you have that defense that you consulted with a tax professional and relied on the advice of a tax professional. That can save you from going to prison. And it really matters when it is something really big.
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It was a pleasure having you here today. I look forward to seeing you next time.