Tax Tips For LLC That You Should Know In 2024

Tax Tips For LLC (1)

When the time comes to file your income tax, you should know that LLC owners enjoy a variety of tax benefits as compared to a sole proprietorship, C corporation, and S corporation. But if you want to pay as little as possible on your income taxes, then you need to know how to take advantage of all of these tax advantages for LLC owners.

That’s why we’ve created this guide. It covers everything you need to know about business tax deductions, self-employment tax, and how to avoid double taxation on business income to help your LLC members have a better tax filing season.

So let’s not delay any longer. Keep reading to learn more about what you should know before you pay taxes again as a business owner.

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What You Should Know about LLC Tax?

The big thing that LLC members should know about their LLC tax bill is that the IRS doesn’t distinguish between an LLC owner and the LLCs they run. In other words, you typically report your LLC’s income on your personal tax return on a Schedule C. Then the profit or loss from the multi-member LLC is reported as income on the IRS’ Form 1040.

This means that your taxable income is your personal income from running your limited liability company. That has an impact on your adjusted gross income, self-employment taxes, and other tax-deductible details you should know before you file taxes this tax season.

It can be helpful to speak with a tax professional the first time if you just swapped over to an LLC from a sole proprietorship, C corporation, or S corporation. They can help to make sure you calculate all your business deductions, benefit from pass-through taxation and don’t miss any capital expenditure deductions for your limited liability company.

What To Prepare for Taxes?

As the business owner of LLCs, you’ll be taxed as a sole proprietor. This means that, in order to file taxes, you’re going to need information about your LLCs business expenditures as well as your own personal income and expenses.

Some of the information that you may need to submit your tax return for your small businesses and LLCs include:

  • Small business expenses such as office supplies and rent payments
  • Startup costs
  • Qualified deductions on business operations, such as the amount you pay for a business vehicle or what you paid to set up your new LLC business structure
  • Payments you make toward disability insurance and other benefits you offer employees
  • Receipts and expenditures to non-employee workers, such as an independent contractor

Tax Deduction Tips for LLCs That You Should Know In 2024

Tax Tips For LLC (2)

Alright, now that we know more about taxable income and LLCs, let’s start looking at some tax deductions and tax benefits that your LLC may be able to take advantage of after swapping from an S corporation or C corporation to an LLC.

Plan a tax- and energy-efficient renovation 

One of the first things to note is that you can qualify for tax deductions and tax benefits by completing an energy-efficient renovation of your office space. The federal government rewards an S corp, sole proprietorships, and LLCs with tax advantages when they invest personal assets to make the business entity and its offices more energy-efficient.

If you wanted to complete a renovation of your office space anyway, you might as well make it an energy-efficient upgrade to take advantage of the tax benefits and potential savings on income taxes that you might generate.

Business vehicles

You can also save on income taxes by deducting expenses that you paid for a business vehicle. This vehicle needs to be primarily used in the pursuit of operating your limited liability companies. But business owners that qualify for the deduction may be able to save a significant sum of money by doing so.

If you have more than one owner, it’s possible that each will be able to deduct the cost of the vehicle they use for the LLC for tax purposes. Or maybe each of you will be able to deduct half. It depends on the state you file your tax return in and other criteria.

Internet and phone bills

Did you know you can also typically deduct your LLCs’ internet and phone bills for tax purposes? The same is possible for every business structure, so it’s worth keeping in mind if you also run an S corp or have any sole proprietorships.

Marketing and advertising

Business owners can also often deduct startup costs related to marketing and advertising LLCs thanks to the Jobs Act. Specifically, if you advertise an available position and spend money finding the right employee, your LLC will likely be able to use those expenses as a tax deduction when the time comes to pay taxes and complete the tax filing process.

Business meals

Business entertainment is also something that you may be able to write off on your taxes. This can include taking potential clients out to meals and any associated expenses that your LLC may have incurred or personal assets that you may have spent to cover the costs of the outing.

Business travel

There are also plenty of tax benefits to keep in mind when it comes to business travel for your LLC, sole proprietorship, or S corp. If you purchase a plane or train ticket to go somewhere or spend money on hotels and restaurants while traveling, your LLC may be able to write those costs off. But some of this can depend on your tax rate and other factors, such as your LLC operating agreement and personal charitable contributions as a sole proprietor.

Independent contractors

Did your LLC hire any independent contractors or freelancers to help it during the previous tax year? If so, you can likely write those wages off when you pay your income tax. This can be one of your biggest potential tax benefits and may help you avoid double taxation as well – especially since you won’t have to pay self-employment tax on behalf of the freelancer who worked for your LLC or sole proprietorship.

Startup business expenses

Creating your LLC probably cost you money in the form of setting up the business structure, purchasing disability insurance for employees, and making sure that you’ve set up a successful pass-through entity. These are all costs that your LLC may be able to write off on its taxes, providing you paid those expenses within the previous tax year and you aren’t being taxed as a sole proprietor.

Read More: Best LLC Services 2024

Charitable contributions

Did you contribute to any charities throughout the year? If so, those may also benefit from the pass-through taxation your LLC receives on business deductions. Remember, since you file for your LLC as an individual, individual tax contributions also receive the full LLC double taxation protection benefits as well.

Health insurance premiums

Finally, you can also often deduct health insurance premiums from your taxes. If your LLC pays for health insurance for employees, those can be deducted as well. This makes it easier for LLCs like yours to provide benefits to employees without having to worry as much about how that could impact double taxation or create other problems for the LLC and its financial trajectory.

Final Thoughts

The bottom line is that if you run an LLC in 2023, you have the potential to pay a lot less on taxes than you might think. We hope this guide provided a good overview of some of the different opportunities for saving your LLCs may have available to them.

Regardless of whether you read this article to learn about double taxation or you’re just looking for new ideas to save, we hope you got the value you’re looking for. And, remember, it never hurts to talk with a tax professional just to make sure you’ve got things right – especially if this is your first year filing taxes for LLCs.

Frequently Asked Questions (FAQs)

What tax deductions are available for LLCs?

There are a wide variety of tax deductions available for limited liability companies in the United States. These range from being able to write-off expenses related to business trips and driving the company car to writing off health insurance premiums and the expenses you incurred while setting up the LLC. The more of these deductions you claim, the lower your tax bill may be this year when you file with your social security number.

How are LLCs taxed by the IRS?

The IRS looks at limited liability companies as extensions of their owners’ personal tax reports. So you don’t actually end up filing a separate tax return for your LLC. Instead, you add the LLC’s income, expenses and deductions to your personal tax report as the LLC owner. The same is true for LLCs that have multiple owners.

How much will my LLC have to pay in taxes?

The amount that your LLC pays in taxes depends on the income it generated throughout the year. Tax rates at the federal and often state levels scale as income increases. So it will depend on your federal and state tax rates, which will be based on the amount of money the LLC earned. You will also have the ability to lower your tax bill by claiming all of the deductions that are available to you.

How can I save on taxes for my limited liability company?

The best way to save on taxes while running an LLC is to keep track of all of your expenses. By doing so, you’ll make sure that you can claim all of the possible deductions your LLC has available when the time comes to file taxes. You may even want to consider hiring a professional because they might be able to save you more than they cost.

Do all LLCs have access to the same tax benefits and deductions?

All LLCs have access to the same federal tax benefits. But there can be some differences between states. For example, an LLC that’s based in California may not receive the same tax benefits as one that’s based in Alabama.

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ABOUT THE AUTHOR

Bizreport - Kellan Jansen
Kellan Jansen, BA
Business Writer
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Kellan works with businesses of all sizes to help them achieve their growth goals and has won several awards for his work in the space. He is especially focused on the fields of business finance and the developing cryptocurrency industry, regularly writing about both for audiences across the globe.

ABOUT THE REVIEWER

Kristina Knight-1
Kristina Knight, Journalist , BA
Content Writer & Editor
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Kristina Knight is a freelance writer with more than 15 years of experience writing on varied topics. Kristina’s focus for the past 10 years has been the small business, online marketing, and banking sectors, however, she keeps things interesting by writing about her experiences as an adoptive mom, parenting, and education issues. Kristina’s work has appeared with BizReport.com, NBC News, Soaps.com, DisasterNewsNetwork, and many more publications.

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Bizreport Advisor adheres to strict editorial integrity standards avoids using tertiary references. We have strict sourcing guidelines and rely on peer-reviewed studies, academic research. To ensure the accuracy of articles in Bizreport, you can read more about the editorial process here.

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