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Running a small business is no easy feat. Turning a profit as an LLC requires a certain level of discipline to ensure you’re getting the most value out of every dollar that passes through your business. 

The good news is that there are a lot of ways for you to potentially boost this value and retain more money in profits. Cutting business expenses as much as possible and putting a plan in place for cost control are two great places to start. 

But not all spending can be avoided: Many expenses are a natural, and necessary, part of running a business. In those cases, you want to make sure you’re prioritizing tax deductible business expenses, which can help you lower your business income for the tax year, as much as possible over non-deductible expenses, which don’t offer any tax benefits.

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 category.

Deductible business expenses for LLCs

Deductible business expenses are those costs of doing business that you can deduct from your taxes in order to lower your LLC’s taxable income for the year and save you money. In order for the Internal Revenue Service (IRS) to consider an expense deductible, it must meet two criteria. It must be:

  • Ordinary: The expense is common and accepted in your industry.
  • Necessary: The expense is helpful and appropriate for your business or trade, but not necessarily “indispensable.”

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

  • Payroll: Employee salaries, wages, overtime, bonuses, commissions, and other forms of compensation
  • Employee benefits: Employee health insurance, retirement plan contributions (401k, pension), paid time off (sick time, paid vacation, parental leave), and other benefits
  • Startup costs: Equipment and supplies purchased to get your business off the ground
  • Moving expenses: Related to moving from one office (warehouse, etc.) space to another
  • Office supplies: Paper, printers, pens and pencils, cleaning supplies, toiletries, and other supplies necessary to keep the office functioning. Includes home office expenses (i.e., the home office deduction) for business owners operating out of their home
  • Rent and lease payments: For your office space, business vehicles, and other machinery or equipment
  • Utilities: Water, gas, electricity, phone service, internet service
  • Marketing and advertising: Business cards, flyers, mailers, advertisements (print, radio, digital), website fees, public relations, marketing consultant or agency fees, etc. 
  • Administrative services: Cleaning services, janitorial services, office maintenance and repairs
  • Professional services: Any business process contracted out to a third-party instead of handled internally, including legal services, accounting services, and contracted labor
  • Financial fees: Bank fees and interest (credit cards, business loans, line of credit, mortgage, other debt)
  • Licensing: Business licenses, permits, and certification necessary to operate
  • Taxes: Local, property, and business taxes; payroll taxes (Social Security and Medicare taxes)
  • Product development: Software and equipment used for research and development (R&D)
  • Business insurance premiums: Worker’s compensation insurance, general liability insurance, property insurance, travel insurance
  • Business travel: Airfare, lodging (hotels, motels), meals, mileage, tolls, parking expenses, etc.
  • Depreciation: Of buildings, vehicles, equipment, machinery, and other business assets
  • Inventory: Raw materials, components, storage of finished product 
  • Shipping: Postage fees related to sending correspondence or fulfilling orders
  • Gifts under $25: To employees, customers/clients, suppliers/distributors, and other business associates (under $25 per recipient per year)

Non-deductible business expenses for LLCs

Non-deductible business expenses, on the other hand, are any expenses that cannot be claimed as business tax deductions by your LLC. While you should always keep an eye on spending, because these expenses don’t count as business deductions and can’t lower your tax bill, it’s especially important to avoid them whenever possible. 

For some expenses, their status as non-deductible may seem obvious; for others, you may find yourself wondering why they don’t count as a business expense. Some of the most common non-deductible expenses you’re likely to encounter include:

  • Personal expenses: Personal meals and entertainment, clothing, haircuts, grooming costs, vehicles, and travel expenses 
  • Household expenses: Household utilities, personal cellphone or 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 office
  • Certain insurance premiums: For life insurance policies taken out to secure a business loan or where you are the beneficiary, and for 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 (in excess of $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

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How to track and manage your LLC’s expenses

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

Establish a clear expense policy

If you allow employees to spend on behalf of your business, it’s a good idea to have clear policies in place that employees can reference before making any purchases. 

An expense policy outlines which purchases are allowed and which are prohibited, outlines any spending limits, and details the expense approval process. Using an expense policy template can simplify the creation of these guidelines.

An reimbursement policy outlines the process that employees should expect if they need to be reimbursed because they made a business purchase using their own money. 

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 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 write-off you claim. That’s the only way you can be sure your business is safe from penalty if you ever find yourself audited by the IRS. 

For purchases, this means collecting receipts, invoices, and work orders. For mileage deductions, this means tracking the number of business miles driven—both on an annual and per-trip basis. 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 try and avoid intermingling personal and professional spending. Ideally, this means you will 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 much easier to keep track of your business spending and to provide a paper trail in the event that you’re audited. 

Many entrepreneurs 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 what is personal and professional, and might subtly encourage you to mix funds. A completely separate business spending card 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, it’s important to note that that isn’t the only way you can categorize your expenses. You might, for example, also break out spending by:

  • 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. Rent payments and employee salaries are examples of fixed expenses. 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. 

By leveraging multiple business expense categories, you empower yourself to slice and dice your expenses in a number of 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 expenses can be complicated, especially if you’re doing it by hand or 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 of it.

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

  • Upload your expense policy directly into Ramp’s platform to establish rules for expense submissions, establish alerts to be triggered when employees make purchases in prohibited categories or surpass spending limits, and define your approvals process
  • Stop chasing paper receipts by empowering (and requiring) your employees to upload digital scans with each expense submission using a receipt scanning app
  • Issue corporate spending cards with pre-approved spending limits and categories built right in
  • Categorize business expenses in multiple ways—easily and automatically
  • Automate as much or as little of your expense approval process as makes sense for your business

Interested in learning more about how Ramp can help your LLC get its spending under control to make tax time easier? Request a demo, or try Ramp for free today.

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Contributor Finance Writer
Tim Stobierski is a writer and content strategist focused on the world of finance, investing, software, and other complicated topics. His friends know him as a bit of a nerd. On the side, he writes poetry; his first book of poems, Dancehall, was published by Antrim House Books in July 2023.
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