Updated: March 11, 2024
Preparing taxes for your startup corporation or LLC can be daunting and expensive. Without proper guidance, you might overlook valuable deductions worth thousands of dollars each year. Our straightforward tax deduction cheat sheet is here to help you navigate this complex landscape and uncover the most essential tax breaks you may have missed.
15 Tax Deductions for your Startup LLC or S-Corp
If you’re a business owner wondering how to reduce your taxes legally, you're not alone. There are practical, legitimate ways for businesses to use deductions to lower their tax bills and keep more of their profits. Whether you're just starting or have been in business for a while, these tax-saving strategies can benefit you.
Take a look at our tax deduction cheat sheet, which outlines 15 simple ways to lower your tax bill:
1) Home Office
If your workplace is your home base, you're in luck! This deduction is your golden ticket to offseting your taxes. It lets you claim expenses tied to maintaining your home office, covering everything from utilities and Wi-Fi to repairs and insurance. You can opt for a standard deduction of $5 per square foot of your office space or calculate actual expenses based on the percentage of your home used for business. Just remember to hold onto all those receipts and documents—they're your ticket to maximizing this deduction.
2) Office Supplies
You can write off the essentials that keep your business humming smoothly. From the basics to the tech gadgets, here's what you can deduct:
Office furniture like desks, chairs, shelves, and drawers
Printers
Ink cartridges
Computer costs
Stationary
USB drives
Business-related subscriptions and software
Postage and packaging materials
Cleaning supplies
Don't miss out on these deductions—they're the backbone of your operation and can save you a bundle come tax time!
3) Travel Expenses
You can deduct 100% of your business and travel expenses. These can include air travel, business lodging, meals, entertainment, parking fees, car rentals, and gas.
4) Business Meals
Often, freelancers and small business owners think that only lavish, high-end lunches qualify as deductible business expenses.
But that's not the case.
In truth, individuals across various industries - beyond just consultants and salespeople- can claim business lunches as deductible expenses. The crucial factor is understanding what qualifies under the tax regulations.
For 2024, 50% of a business meal’s cost can be deducted. The IRS guidance on business meals notes that “the food and beverages" must be "provided to a current or potential business customer, client, consultant, or similar business contact.”
Navigating what constitutes a "similar business contact" can be murky. Let's clarify what qualifies—and what doesn't.
Treating a client to lunch - This is straightforward. If you meet with a client over lunch to discuss work matters, it's deductible - even if you cover the entire bill.
Cultivating a potential client - Expanding your professional network is crucial for business growth. Former colleagues and industry acquaintances could eventually become clients - or refer you to one.
Signing contracts over lunch isn't necessary for it to qualify as a business expense.
Lunch with a coworker: When you dine out with a colleague to discuss work matters, it's deductible. Just remember to jot down key points from your conversation.
Networking opportunities - Don't overlook this! Staying abreast of industry news and trends is crucial.
Meeting with peers to exchange insights and grow your professional circle can lead to valuable referrals. Again, document your discussions.
What doesn't qualify as a business meal? Unfortunately, not all food consumed during work hours is deductible. While some examples may seem obvious, they don't meet the criteria for deductions.
✘ Snacking on the job - As a rule, if eating isn't a job requirement, it's not deductible.
For instance, if you're a security guard stationed for hours without breaks, snacks you purchase are deductible. However, if you're simply grabbing snacks to save time, it's a personal expense.
✘ Grocery shopping for your home office - Despite outfitting your home office with groceries, your regular grocery bill does not qualify as a deduction.
✘ Solo dining - Having lunch alone, even if you're multitasking with work, doesn't count as a business meal. This includes grabbing coffee while working remotely.
Remember: If you're dining solo, it's not deductible.
5) Phone and Internet Costs
You can write off your cell phone or landline use as long as you use your phone for business purposes. This can include everything from your monthly cell phone bill to the cost of your new smartphone.
Remember to watch the Omni Resources e-learning videos to learn more about the proper structuring of your phone and internet subscriptions.
6) Business Startup Cost Deduction
This deduction is particularly beneficial for newly established businesses that have incurred expenses to establish and launch their S-Corps or LLCs. New ventures can deduct up to $5,000 for startup costs and an additional $5,000 for organizational expenses, provided that the total startup costs do not exceed $50,000.
If the startup costs surpass $50,000, the deductible amount is reduced accordingly. However, if the costs exceed $55,000, the deduction is completely phased out, and any remaining costs must be amortized over a period of 15 years.
7) Self Employment Tax
Sole proprietors and LLCs with only one owner pay the full amount of self-employment tax, which is 12.4% for Social Security and 2.9% for Medicare (15.3% total).
The IRS allows you to deduct half of the self-employment tax (7.65%) on your income taxes, therefore reducing your tax liability.
8) Professional/Legal fees
Whether it's for a consultation, to draft a contract, or to prevent or defend against a lawsuit, lawyer fees can add up quickly. The good news is that legal fees related to the operation of a business are tax deductible.
The same applies to professional fees, business consulting fees, and tax preparation services.
Whether it's tackling a new project, navigating a complex challenge, or seeking a fresh perspective, Omni Resources is here to support you every step of the way. See our popular additional services below:
Update Business Information and Lost Document Replacement
Out of State Business Certifications
Business Relocation
Set Up New Business Addresses
Strategic Business Planning
Benefits, HR, and Payroll Information
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Government Compliance Regulation Information
Commercial Loans
Credit Report Evaluations
Estate Planning Trusts
Setting up Non-Profits, Corporations, or LLC
9) Bad Debt
If you have a vendor or customer that has not paid their bill, has gone out of business, or has not responded to any attempt to pay off their balance, business owners can claim a deduction from this uncollected debt.
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10) Automobile Deductions
If you use your vehicle for business purposes, you can deduct your auto expenses, including miles driven. You can also count your vehicle as a business asset and deduct the depreciation value.
If you use a car for your business, lease payments are fully deductible as a business expense. However, when you buy a car for business use, you can't deduct the entire cost in the year you bought it. Instead, you can deduct a portion of the cost each year over the vehicle's useful life through depreciation.
11) Medical Expenses
Medical expenses are on the rise annually. One method to save money is by calculating the expenses associated with your health plan, including co-pays, deductibles, and other medical fees, such as medications. It's crucial to maintain accurate records.
If your medical expenses exceed 7.5% of your adjusted gross income, you can deduct the amount exceeding this threshold.
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12) Advertising and Promotions
If you're a startup gearing up to print your inaugural batch of business cards, unveil a promotion, or kickstart an advertising campaign, rest assured that all these expenses are tax deductible.
Moreover, the costs linked to maintaining and operating your website, promoting yourself online, or even sponsoring local events, like a middle school football team, are all eligible for tax deduction as they
13) Bank Fees and Interest
Interest payments and bank fees can take a huge chunk of a business's revenue. This is especially true when dealing with a high-interest rate environment.
If your business uses credit to finance purchases, the interest charges are fully tax deductible. The same applies if you take out a loan to help fund your company.
contribute to advertising your goods and services.
14) Business Entertainment
Demonstrating hospitality to your clients can play a significant role in your business, particularly when nurturing relationships and exploring potential business opportunities. Following the enactment of the Tax Cuts and Jobs Act in 2017, the deductibility of most entertainment expenses has been eliminated.
However, expenses related to entertainment meals remain 50% deductible, provided they are distinct from the overall entertainment costs.
15) Retirement Plan Deductions
As a business owner, you have several options for setting up retirement vehicles for your employees. A SEP IRA is an ideal way for business owners to sock away money in a retirement account and deduct the contribution from their taxable income. Learn more about SEP IRAs in our newsletter about them here.
If you are self-employed, earning income, and NOT taking advantage of the SEP-IRA, get ready to cut your tax liability and save more money for retirement. All S-corporations, partnerships, and LLCs qualify.
View a sample tax deduction checklist from Omni Resources below!
Tax Workarounds for LLCs and Corporations
Unlike a Corporation, an LLC does not pay corporate income tax. That doesn't mean you don't need to file a business tax return, but this does offer a big benefit by allowing you to treat the LLC as a "pass-through" entity for tax purposes.
Simply stated, the income earned by the LLC "passes through" the business owner's personal taxes. Here's how this and other tax loopholes for LLCs will help save you money:
Filing as an S Corp. To gain the maximum tax benefit, your LLC will need to file taxes as an S Corp. This will help you reduce your self-employment taxes by paying yourself a salary from a portion of the revenue and distributing the rest of the money earned by the business as a dividend.
Capital expenditure deductions. Money used to buy physical assets for a business, such as property, vehicles, buildings, equipment, or technology, is a big investment many small businesses make. Payments for these assets and their upkeep can be deducted incrementally throughout the year.
Qualified Business Income Deduction. This deduction, also commonly called QBI, is worth up to 20% and can be taken in addition to standard and itemized deductions. This applies to net income (minus business expenses). Instruction can be found in IRS Form 8995 or through a tax professional. Please contact Omni Resources if you do not yet have a tax professional assisting you.
7 Tax Mistakes to Avoid This Tax Season
If you're tackling your startup S-Corp or LLC taxes solo, proceed with caution. Filing business taxes without the aid of a tax-deductible service can lead to penalties and fines. Moreover, tax regulations are constantly evolving. Keep reading to discover the common pitfalls to steer clear of during tax season.
Making "avoidable" errors on your tax form: Spell your name correctly, include the correct Social Security or EIN, and make sure all the boxes you check are intended to be selected.
Overlooking or forgetting to add information that the IRS is already aware of: As we get closer to tax reporting time, you'll begin to receive documents showing how much you earned. These may include bank interest, dividends from stock that you own, or direct income earned. Make sure you enter all these amounts accurately, as the IRS already has this information. Failure to match the records collected from your bank, brokerage firm, or employer will raise a huge red flag with the IRS.
Neglecting to add business deductions: Go back to the beginning of this article and review the deductions you can legally claim for your business. Neglecting to add these deductions will make your tax bill much higher.
Keeping inaccurate records: It's important to keep your bills, receipts, invoices, and other documents related to your business in case you get audited by the IRS. Having this paperwork will prove that the deduction and credits claimed are valid. Keep these records for at least three years.
Missing your tax payment date: If you owe money to the IRS, make sure you pay it by or before the cut-off date. Generally, the due date is April 15, but this can vary if the date falls on a weekend. Failure to pay will result in a penalty of 5% of the amount owed per each passing month.
Missing your tax filing date: The tax filing date for 2024 is April 15. Forgetting to file your taxes by the due date will lead to fines and penalties. If you really need more time, make the effort to file for an extension by submitting Form 4868. This will give you four more months to gather your documents and information. Just make sure you file by October 16.
Submitting your return unsigned or undated: This happens more often than you'd think. Unsigned or undated tax returns cannot get processed, so if you followed all of the advice in this article but neglected to sign your form, you will need to refile completely.
What Can I Claim Without Receipts?
Keeping receipts is the most reliable method to substantiate deductions. In the event of an audit, you'll need to provide them as evidence. However, if you lack a receipt, alternative documents like bank statements, invoices, or bills may suffice. Examples of items falling into this category include vehicle expenses, retirement plan contributions, health insurance premiums, and cell phone expenses. Many of these transactions are likely to be recorded in your bank or billing statements.
Maximize Your Deductions with a Tax Specialist
Filing taxes can be complicated and time-consuming if you're running your own business, especially if you undergo an audit. Avoid missing crucial information or deductions by hiring a tax-deductible professional.
Omni Resources can connect you with professionals who offer business Accounting and Bookkeeping services to make your business filing a breeze. Please contact us if you’d like assistance with your business tax preparation this year.
Inspirational Quote of the Month
“The No. 1 reason people fail in life is because they listen to their friends, family, and neighbors.”
— Napoleon Hill
Oliver Napoleon Hill was an American self-help author. He is best known for his book Think and Grow Rich, which is among the best-selling self-help books of all time.
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Editor’s note: Nothing in this blog post should be construed as legal advice of any kind. Any legal, financial, or tax-related content is provided for informational purposes only and is not a substitute for obtaining advice from a qualified legal or accounting professional.
