Limited liability companies qualify for credits and tax deductions that unincorporated businesses cannot take advantage of. A tax write-off, or deduction, reduces the overall income subject to tax. Most expenses related to owning and operating an LLC can be written off as a
business expense for federal tax purposes.
Limited liability companies can claim start-up deductions for qualifying expenses incurred during the first year of operation. Costs that are not deducted during the first year can be amortized over a 180-month period. According to the IRS, to qualify as a business start-up cost, the expense must be paid or incurred before the day the business began. Deductible start-up costs include market analyses, business advertising and salaries for new employees who are in training. The company can also write off fees paid for consultants and other professional services.
Location and Property
An LLC can write off business location expenses. If the owner operates the business from a home office, expenses such as business phone and supplies qualify for deductions. Personal mortgage payments and utilities usually do not qualify for business write-offs, but an LLC can deduct rent paid for un-owned property as a business expense. If part of a rental home is used as a home office, the company may be able to deduct rent paid for that part of the home. The cost of business property such as furniture, computers and office equipment can be written off over time according to a depreciation schedule.
Transportation and Travel
Transportation and travel expenses qualify for tax deductions. Transportation expenses include visiting clients and customers as well as traveling to business meetings away from the regular place of business. Travel expenses include costs incurred while traveling for business purposes. The LLC can deduct the cost of airplane, train or bus travel to a business destination as well as mileage costs for local or overnight travel. Meals and certain entertainment expenses incurred during business travel are also tax deductible.
Limited liability companies receive tax credits for certain qualified expenses. A tax credit is not the same as a write-off, but it serves a similar purpose by reducing the LLC’s tax liability. While tax deductions reduce the company's taxable income, credits are subtracted right from the tax. The IRS allows general business credits for companies that utilize alternative motor vehicles or renewable fuel sources. LLCs may also qualify for credits for employer/employee-related expenses such as credits for employer paid social security and Medicare taxes as well as credits for employer-provided child care services.