Top 5 Tax Write Offs for LLCs in 2021!

hey guys welcome back to the channel crystal here cpa and co-founder of life accounting today i'll be going over the top five write-offs you could be taking in your llc this year and next year and the year after that all to save you the most on your taxes are you ready let's get started there are over 20 million llcs in the u.s today and chances are if you're watching this video you already have an llc or at least thinking about starting one of your own in either case you want to make sure you're aware of the tax write-offs or deductions you could take to minimize your tax liability or even maximize your refund the first write-off i'm going to discuss is the home office deduction this has to be one of my favorite write-offs because it can apply to almost everyone and it allows you to write off normally personal expenses as business expenses if you have a dedicated room or space in your home that is strictly for business you can take the home office deduction most small business owners run their business from their home anyways and considering the worldwide pandemic we experience and are currently experiencing a lot of us entrepreneurs were forced to work from home so here's how it works first you would need to figure out the square footage of your home office or space then you would divide that by the total square footage of your entire home this would give you the business percentage use of your home you can then write off that business percentage of your rent mortgage interest utilities insurance real estate taxes repairs maintenance the list goes on and on so for example let's say your home office or space is 150 square feet and your entire home is 1500 square feet 150 divided by 1500 is 10 so now you can deduct 10 of your rent your utilities and all of the other expenses that i mentioned side note notice how i've been mentioning it as a home office or space you don't necessarily need an entire room in your house to take this deduction it just has to be a dedicated workspace so if that's a desk and a chair in the corner of your living room that can work if that area is regularly used and worked in for business the second write-off i'm going to discuss is startup and organizational costs when you first start your llc there's a pretty good chance you had some initial investment cost and things like computers equipment research and development maybe you paid a consultant or a lawyer you probably had some state filing fees you had to pay right you're able to deduct up to five thousand dollars in startup costs in the first year you open your business now let's assume that you spent more than five thousand dollars because that can easily happen you can write off the first five thousand in year one and amortize the cost above five thousand over 180 months so those costs are not completely wasted and will benefit you on your taxes over the years to come the third write-off is your cell phone expenses so if you're anything like me i do a lot of my business on my cell phone probably more business than personal this creates the opportunity to not only write off the purchase of your cell phone which we know can easily be over a thousand dollars but also the monthly service of that cell phone but similar to the home office deduction you can only write off the business use of your cell phone so if eighty percent of the usage of your cell phone is for business purposes you can only write off eighty percent of the cell phone and monthly service on your tax return the fourth write-off is vehicle expenses this is a big one that a lot of business owners miss or just don't take advantage of i'm always reminding my clients about this deduction and they're like oh yeah i did use my car for business last year when you use your vehicle for business purposes there are two ways you can write off the expenses you can write off the mileage or you can write off the actual expenses of the vehicle let me explain with the mileage approach you can write off 56 cents per mile in 2021 for every business mile you drive this rate changes every single year so it's important to keep up with what the business mileage rate is year over year though it doesn't fluctuate too much higher or lower than the current rate with the actual vehicle expense write-off you can deduct expenses like gas tires insurance repairs and lease payments if you use your vehicle for both personal and business these expenses must be split based on the number of miles for business and the total amount of miles driven from what i've seen in some cases it's better to take the actual expenses and in other cases the standard mileage rate is more beneficial the bottom line is you should be keeping track of your business miles and your overall mileage for the year and your vehicle expenses this is a huge deduction and can literally save you thousands of dollars business owners missed this one time and time again so i'm hoping you won't be one of them the fifth and final write-off is retirement okay so i hope that each and every one of you are saving for retirement as a business owner you're kind of out on your own when it comes to retirement but that's not necessarily a bad thing you just have to know what your options are there's sep iras solo 401ks and simple iras that can be used as tax deductions and retirement planning tools so let's say you go with the sep ira you can deduct up to 25 percent of your self-employment earnings that is put away for retirement solo 401ks is similar but you can't have any employees in your business to establish this retirement account solo 401ks also allow you to contribute more in a given year which would increase your write-offs we have some really good videos on our channel that take a deeper dive into retirement accounts for business owners so be sure to check those out as well you know what i'm going to give you guys a bonus tip that will save you thousands of dollars in taxes but you have to do me a favor and subscribe to our channel if you haven't already give this video a thumbs up and hey while you're at it comment down below what your favorite write-off is from today's video okay did you do that great so the bonus tip is getting s-corp status once your llc is growing making money it's your sole source of income it can be greatly beneficial to be taxed as an s corporation this will save you 15.3 percent in self-employment taxes as an llc taxed as an s corporation you do have to pay yourself the business owner a reasonable compensation and self-employment tax is calculated and paid based off of that amount but any profit above your compensation is not subject to self-employment tax plus you can write off your compensation from your business income this creates huge tax savings and not enough llc owners are doing this you know one of the benefits of having an llc is deciding how you want to be taxed you can be taxed as a sole proprietor which is usually the default and results in a lot of self-employment taxes you can also be taxed as a s corporation or even a c corporation as well electing to be taxed as an s corporation is not exactly a tax write-off but it is a tax planning strategy as your llc starts earning fifty thousand sixty thousand and seventy thousand and beyond it is extremely wise to start considering the other options and how you wanna be taxed alright there you have it i hope you guys enjoyed this video and we'll start implementing some of these tax write-offs in your llc this year if you have any questions please comment them down below and i will answer them see you in the next video [Music]

Channel: LYFE Accounting

Views: 67,150

Keywords: tax write offs, tax write off for llcs, tax deductions for llcs, tax deductions for self employed, tax deductions, LLC deductions

Id: rK7RYDYF8h8

Length: 8min 12sec (492 seconds)

Published: Fri Apr 30 2021