Tax Deductions and Benefits to Review With Your Accountant

EQUES Business Team

By Attorney Tom Schmitt

You started your LLC to make money – either as a primary source of income or as a side hustle. Or maybe you have something going on the side and are considering if it’s worth it to set up your own LLC.

Just because you brought money into the business (“revenue”) doesn’t mean you have to pay income taxes on it (“income”). Often, a simple bookkeeper’s reclassification of your purchases or expenses can save you thousands. Once you’ve checked all the legal boxes with us to set it up, the best money you’ll spend is on an accountant and some good bookkeeping to make sure you’re paying the right amount of taxes. Use this checklist to take a fresh eye on your books and talk to your accountant:

1.  Professional Fees.

You probably just paid a lawyer to set things up, and you’re about to pay an accountant and maybe a bookkeeper. Track those and offset them from your revenue to reduce your income – less “income” means less taxes.

2.  Home Office Deduction. 

Got an area of your home that you use for your business? You can take a percentage of your business revenue as “tax free income” to reimburse yourself for the percentage of your mortgage, property taxes, home insurance, and utilities that are attributable to your home office – subject to some rules on depreciation (which may affect capital gains down the road).

Example: if the total square footage of your house is 1,800 sq feet, and the “company’s office” is a 250 sq feet room, then you can take 13.89% of your mortgage, etc., out of your business revenue as “tax free income” to your personal checking account.

3.  Equipment, technology, and depreciation.

Larger purchases like a computer, printer, office furniture, or machinery and tools are likely deductible through depreciation and other expensing rules. Discuss when you placed those assets “in service” to maximize your options.

4.  Ordinary and Necessary Business Expenses.

Office supplies like printer paper and toner, software subscriptions, bank/merchant fees, business insurance, and continuing education are just a few examples of routine things you purchase. They can often be used to offset your business revenue.

5.  Vehicles and Mileage.

Talk to your accountant about purchasing a company car –which you can occasionally utilize (e.g. 10-15% of the mileage) for personal use, and the ability to deduct the business portion (e.g. the “other” 85-90%) from your revenue, along with gas, reasonable maintenance, and vehicle insurance. If you are using a personal vehicle, make sure to track mileage and other expenses.

6.  Travel for Work. 

Got an investment property like a vacation rental or Airbnb that’s some place fun to visit? If it’s in an LLC, it’s likely your travel expenses to go inspect the property and hold a company meeting there are covered.

7.  Maximize Your Meals.

Put together a “company meeting” with your spouse to talk some business over dinner at a restaurant, and half of the total bill could be a deductible business expense. Did you meet a potential client for coffee, or network with professional peers at a happy hour? Make sure those are tracked and accounted as well.

8.  “Hire” Your Kids.

Have your kids appear in your marketing videos, hand out swag, or clean that home office once a month. Then “pay” them by contributing tax-free to their college savings (e.g. 529 Plan) – just issue a 1099 to track it.

9.  Marketing and Advertising.

Make a company logo and tagline and put it on some clothes or swag, then wear it, use it, and/or give it away. Sponsor an event at your favorite church or charity at a level where they publish your company name and logo, and that’s a marketing/advertising expense.

10.        Retirement Plans and Health-Related Benefits.

Talk to your accountant and your financial advisor about making tax-free contributions to retirement options such as SEP IRA, SIMPLE IRA, or a 401(k) for owner-operators. And ask whether an HSA is available and about other health insurance treatment for owners (which varies by tax classification).

“Reducing your income” doesn’t necessarily mean reducing your revenue: it’s all about utilizing bookkeeping and accounting rules to accurately offset your business expenses, and to truly calculate the “income” that’s left over. By setting up that LLC, you’ve unlocked a whole new world of thinking – make sure you’re getting the most out of it!

This article is general information, not tax advice. Please coordinate with your accountant, and let us know if you'd like us to review your entity structure, contracts, or compliance processes.