LLC expenses cheat sheet: 20 tax write-offs for LLCs

Running a small business is no easy feat. Turning a profit as an LLC requires discipline to ensure you get the most value out of every dollar that passes through your business. The good news is that there are a lot of ways small business owners can boost this value and retain more profits.

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Cutting business expenses as much as possible and implementing a cost-control plan are two great places to start. But not all spending can be avoided: Expenses like rent, utilities, payroll, and others are a necessary part of running a successful business.

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If spending is unavoidable, you want to make sure you’re prioritizing tax-deductible business expenses over non-deductible expenses as much as possible. These expenses can help reduce your taxable income, which ultimately lowers your business income tax liability.

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Not sure which expenses are—and aren’t—deductible? We’ve pulled together a quick cheat sheet below to help you understand what types of spending belong in each expense category.

LLC business expenses you can write off

Deductible expenses are costs of doing business that you can deduct from your income taxes. Also known as write-offs, deductible expenses save you money by lowering your LLC’s taxable income for the year. For expenses to be considered deductible, the Internal Revenue Service (IRS) requires that they be both ordinary and necessary.

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Ordinary expenses are common and accepted in your LLC’s industry. Necessary expenses are helpful and appropriate for your business or trade but not necessarily indispensable—an important distinction.

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Some of the most common deductible expenses your LLC may encounter include:

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1. Payroll: Employee salaries, wages, overtime, bonuses, commissions, and other forms of compensation
2. Employee benefits: Employee health insurance premiums, retirement plan contributions, paid time off (including sick time, paid vacation, and parental leave), and other benefits
3. Startup costs: Equipment, supplies, and other startup expenses to get your business off the ground
4. Moving expenses: Related to moving your business operations from one space to another, whether you’re moving your office, warehouse, storage facility, etc.
5. Office supplies: Paper, printers, pens and pencils, cleaning supplies, toiletries, and other supplies necessary to keep the office functioning. This category includes home office expenses (i.e., the home office deduction) if you operate out of your home.
6. Rent and lease payments: For your office space, business vehicles, and other machinery or equipment
7. Utilities: Water, gas, electricity, phone service, internet service, etc.
8. Marketing and advertising: Business cards, flyers, mailers, print, radio, or digital advertisements, website fees, public relations, marketing consultant or agency fees, etc. 
9. Administrative services: Cleaning services, janitorial services, office maintenance and repairs, etc.
10. Professional fees: Any business process contracted out to a third party, including professional services like legal, accounting, and tax preparation, as well as independent contractors and other freelancers
11. Financial fees: Bank fees and interest paid on credit cards, business loans, and lines of credit, including mortgage interest
12. Licensing: Business licenses, permits, and certifications necessary to operate
13. Taxes: Local, business, and property taxes, as well as payroll taxes (including Social Security and Medicare)
14. Product development: Software and equipment used for research and development (R&D)
15. Business insurance premiums: Worker’s compensation insurance, general liability insurance, property insurance, and travel insurance
16. Business travel: Airfare, lodging, business meals, mileage related to a business trip, tolls, parking expenses, etc.
17. Depreciation: Of buildings, vehicles, equipment, machinery, and other business assets
18. Inventory: Raw materials, components, storage of finished product
19. Shipping and freight: Fees related to sending correspondence or fulfilling orders‍
20. Gifts under $25: To employees, customers/clients, suppliers/distributors, and other business associates (under $25 per recipient per year)

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Non-deductible business expenses for LLCs

Non-deductible business expenses, on the other hand, are any expenses that you can’t claim as business tax deductions for your LLC. While you should always keep an eye on spending regardless of whether you can write it off, it’s especially important to avoid non-deductible expenses whenever possible because they don’t do anything to lower your tax bill.

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For some expenses, their status as non-deductible may seem obvious; for others, you may wonder why they aren’t qualifying business expenses. Some of the most common non-deductible expenses you’re likely to encounter as an LLC include:

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• Personal expenses: Personal meals and entertainment, clothing, haircuts, grooming costs, personal travel expenses, vehicle expenses that aren’t related to business use
• Household expenses: Household utilities, personal cell phone plans, residential landlines, furniture, groceries, and supplies
• Childcare expenses: Babysitting, daycare, preschool, and private school tuition
• Commuting costs: Gasoline, bridge and tunnel tolls, parking fees, bus and subway fare, train tickets, and mileage to and from your primary place of work
• Certain insurance premiums: Life insurance policies taken out to secure a business loan or where you are the beneficiary, and disability insurance policies that replace your income if you can’t work
• Entertainment costs: Whether related to employee, client, customer, or business-partner entertainment
• Gifts above $25: To employees, customers/clients, suppliers/distributors, and other business associates (over $25 per recipient per year)
• Penalties and fines: Incurred in the course of doing business, such as workplace safety (OSHA) violations, parking and speeding tickets, and late fees on federal and state taxes
• Political contributions: To political candidates, campaigns, political action committees (PACs), and other political organizations
• Charitable contributions: Made to a qualified organization, such as a religious, educational, scientific, or social charity or nonprofit. These donations can, however, often be claimed on your personal tax return if you itemize deductions instead of claiming the standard deduction.

How to track and manage your LLC’s expenses

If you’ve never tracked business expenses before, it can be tricky to know where to get started. Below are some tips to help you track and manage your LLC’s expenses.

Establish a clear expense policy

If you allow employees to make purchases on behalf of your business, it’s essential to have a process in place to manage those expenses. This is where expense policies come into play.

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An expense policy explicitly specifies which purchases employees are allowed to make, outlines any spending limits, and details the expense approval process. If your LLC currently doesn’t have an expense policy, an expense policy template is a helpful way to get started.

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Alongside your expense policy, you’ll also want to implement a reimbursement policy. This document outlines the process employees should expect if they incur a reimbursable business expense with their own money.

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Other policies to consider, depending on the nature of your business and the types of spending you see, include a travel expense policy and a corporate credit card policy.

Document everything

If you’re planning on claiming any of your expenses as business tax write-offs, you’ll need to document each and every deduction you claim. Not only does this practice set you up for success come tax time, but it’s also the only way you can be sure your business is safe from penalty if you ever find yourself audited by the IRS.

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For purchases, this means collecting receipts, invoices, and work orders. For mileage deductions, this means following the IRS mileage log requirements, including tracking the number of business miles driven annually and per trip. In both cases, it’s important to have a record of the business purpose of the purchase or travel.

Use a corporate spending card

Generally speaking, it’s a good idea to avoid intermingling personal and professional spending. Ideally, this means you’ll have separate banking and spending accounts for your business—and that you don’t ever use those accounts to pay for personal expenses. This makes it easier to track your business spending and to provide a paper trail if you’re audited.

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Many entrepreneurs and self-employed individuals do this by opening a second checking account for their business and linking it to their personal accounts. While convenient, this can blur the lines between personal and business-related spending and might subtly encourage you to mix funds. A completely separate business credit card for your LLC sets a clear distinction between these two money sources.

Leverage multiple expense categories 

While we spent a lot of time above talking about deductible and non-deductible business expenses, that’s not the only way to categorize your expenses. For example, you might also break out spending by:

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• Recurring vs. one-time expenses: One-time expenses are expenses that your business pays for once, like when you purchase new equipment or supplies. Conversely, recurring expenses occur on a repeating basis, whether that’s weekly, monthly, or annually. Subscriptions and software fees are an example of recurring costs.
• Fixed vs. variable expenses: Fixed expenses are recurring costs that are the same each time you pay them, like rent payments and employee salaries. Variable expenses, on the other hand, are recurring costs that fluctuate—typically based on usage. Utility bills and raw material costs are examples of variable expenses.

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By leveraging multiple business expense categories, you empower yourself to slice and dice your expenses in various ways to truly understand how your business spends its money and where you can potentially cut back.

Simplify your LLC’s expense management with Ramp

Managing your LLC’s business expenses can be complicated, especially if you’re trying to get by with a spreadsheet. Paper receipts, mileage calculations, and manual approvals all point to a tedious, time-consuming process for whoever is in charge.

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With Ramp’s expense management platform, you can streamline many of the steps above in order to implement a truly efficient expense management process:

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• Upload your expense policy directly into Ramp to block out-of-policy spending before it happens
• Stop chasing paper receipts by empowering your employees to upload digital scans with each expense submission using Ramp’s OCR-powered receipt scanner
• Issue corporate spending cards with pre-approved spending limits and expense categories built right in
• Integrate with your existing accounting tools for more accurate and comprehensive bookkeeping
• Automate expense approvals and streamline employee reimbursements

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Interested in learning more about how Ramp can help prepare your LLC for tax season? Watch a demo video and see why Ramp customers save an average of 5% a year.