Common Tax Deductions for US LLCs

Deductions reduce your taxable income. For a C-Corporation (or LLC taxed as one), every dollar of deduction saves you 21 cents in tax. Here are the most common deductions for small LLCs.

Ordinary and necessary business expenses

The IRS allows deductions for expenses that are "ordinary and necessary" for your business. The key test:

• •Ordinary: Common and accepted in your industry
• •Necessary: Helpful and appropriate for your business

Common deductions

Software and tools

• •SaaS subscriptions (hosting, email, analytics)
• •Development tools and licenses
• •Design software
• •Project management tools

Professional services

• •CPA and tax preparation fees
• •Legal fees
• •Registered agent fees
• •Bookkeeping services

Marketing and advertising

• •Domain registration and renewal
• •Advertising spend (Google Ads, social media)
• •Website hosting

Contractors and freelancers

• •Payments to independent contractors
• •Outsourced development, design, or marketing

Bank and payment fees

• •Monthly bank fees
• •Payment processor fees (Stripe, PayPal)
• •Wire transfer fees

Insurance

• •Business liability insurance
• •Professional liability / E&O insurance

State fees

• •Annual report filing fees
• •Franchise tax (Delaware)
• •Business license fees

Travel (if business-related)

• •Flights for business meetings
• •Hotels during business travel
• •Meals during business travel (50% deductible)

Deductions specific to foreign-owned LLCs

Management fees. If the foreign owner manages the LLC, reasonable management fees paid by the LLC to the owner are deductible. But they must be arm's length and properly documented.

Intercompany service fees. If a related foreign entity provides services to the US LLC, those fees are deductible if arm's length. Report them on Form 5472.

What's NOT deductible

• •Personal expenses (even if paid from the business account)
• •Capital expenditures (depreciated over time, not immediately deducted)
• •Penalties and fines
• •Political contributions
• •Entertainment (post-2017 tax reform)

Documentation

Keep receipts and records for every deduction. The IRS can disallow deductions without proper documentation. Digital receipts and bank statements are acceptable.

The home office deduction

If your LLC has a dedicated home office space, a portion of rent, utilities, and internet may be deductible. The simplified method allows $5 per square foot, up to 300 square feet ($1,500 max).