Hi, I’m Attorney Elizabeth Potts Weinstein. Today, we're diving into six strategies to help you reduce the tax burden on your LLC. Whether you own a limited liability company (LLC) or another type of business, these tips can help you pay less in taxes, especially if your business is turning a profit.

1. Track All Expenses

The simplest yet often overlooked strategy is to meticulously track all your business expenses. Every deductible expense must be documented with proper receipts and paperwork. Small businesses, especially those operated by a single person, can become lax about record-keeping. Ensure you have a robust bookkeeping system—be it paper-based, an Excel spreadsheet, or specialized software. Keeping business and personal expenses separate is crucial. Remember, expenses like business-related purchases made on a personal credit card need to be logged accurately.

2. Shift Personal Expenses to Business

Shift any personal expenses that are actually business-related to the business. Common examples include your mobile phone, internet, and car usage. If you use these for business, calculate the business use percentage and deduct that portion. Ensure you maintain a log to substantiate these deductions if audited. For instance, document business-related mileage or the business use of a home internet connection.

3. Home Office Deduction

If you use part of your home exclusively for business, you can deduct related expenses such as rent or mortgage interest. Calculate the square footage of your office space relative to your home’s total area to determine the deductible percentage. This deduction applies if the space is exclusively used for business purposes.

4. Personal Tax Deductions

Certain personal tax deductions related to your business can be claimed on your personal tax return. These include charitable donations, child and dependent care expenses, retirement contributions, and health care expenses. For example, self-employment health insurance premiums can often be deducted without itemizing.

5. Depreciate or Deduct Business Purchases

When purchasing items for your business, such as phones, laptops, or cameras, you can either depreciate the cost over time or take an immediate deduction. Small items under $2,500 can often be fully deducted in the year of purchase. Larger expenses may qualify for Section 179 deductions, allowing you to deduct up to $1.08 million, subject to your business income.

6. Elect S Corporation Status

Electing S Corporation status for your LLC can result in significant tax savings, particularly for businesses making a profit between $50,000 and $100,000. This election allows you to pay yourself a reasonable salary, subject to payroll taxes, and take additional profits as distributions, which are not subject to self-employment taxes. This structure can save you thousands in taxes. However, it also introduces complexity, necessitating professional tax preparation and payroll management.

Conclusion

These strategies can substantially reduce your tax burden and improve your financial management. Always consider consulting with a tax professional to tailor these strategies to your specific situation.