What Deductions does the IRS allow for Single Member LLCs or Sole Proprietors?
What expenses does the IRS allow a “Single Member LLC” or “Unincorporated Sole Proprietorship” Business to deduct on Schedule C?
The IRS offers an extensive list of allowable expenses that can be deducted by either “Single Member LLC’s” or “Unincorporated Sole Proprietorship Businesses” to deduct on Schedule C of the Form 1040 Individual Income tax return. The following are so of most common deductible expenses with the corresponding line number listed on Schedule C:
1. Advertising expenses (Line 8)
All expenses you made for marketing, advertising, promoting and publicizing your business are included on this line. Placement and production costs are also deducted. Some of the expenses included on this line are:
-costs of running ads on radio or television;
-placing ads on billboards, newsletters, magazines, and newspapers;
-costs used for flyers, posters, desk, and wall calendars;
-costs for advertising in the yellow or white pages;
-expenses for advertising on the Internet;
-expenses related to PR;
-costs of marketing materials (brochures, videos, CD-ROM).
It is worth noting that Business cards, letterhead, and envelopes are deducted as office expense (Line 18) and are not considered as marketing materials.
2.Car and truck expenses (Line 9)
The operating and maintenance costs of a car or truck used in business are deducted on line 9 of your Schedule C. This is subject to close scrutiny by the IRS as it is highly abused. Your car should be solely used for businesses purposes. Some of the expenses included on this line are:
-driving to a client’s office, office supply store, to various job sites, etc.;
-gas and oil, tires, oil changes and tire rotations;
-car repairs and insurance;
-car or truck loan interests;
-registration fees and license;
-parking and toll fees.
If you’re claiming a deduction on this line, you must also complete either Part IV (Information on your vehicle) on page 2 of Schedule C or Form 4562 (Depreciation and Amortization).
3.Commissions and fees (Line 10)
Commissions and fees given to non-employees or independent sales representative who sell your products or services are deducted on this line. Fees given for credit reports on suppliers, customers, employees, yourself, and your business are also deductible. Keep in mind that commissions given to employees are deducted on line 26 (Wages).
4.Contract Labor (Line 11)
All payments made to independent contractors are deducted on this line. Independent contractors are individuals who have other clients beside you and offer their services to the public.
5.Depreciation and section 179 expense deduction
This allows businesses to gradually deduct the cost of assets such as furniture, equipment, vehicles, telephone equipment, etc. You must complete and file Form 4562 to claim depreciation or section 179 deductions. Properties that can be depreciated are:
-those used in your trade or business;
-those that wear out or become obsolete;
-those with a useful life of more than a year.
6.Employee benefit programs (Line 14)
Deductions on this line include the cost of employee benefits that you provide to your employees and their families. The most common employee benefits include employee and dependents’ health insurance, accident insurance, dependent care assistance programs, etc.
7.Insurance (Line 15)
The premiums you pay for insurance policies protecting your business are deducted on this line. Some of the most common types of insurance expenses are:
-employee performance bonds;
-fire, flood, and other property and casualty insurance;
-professional liability insurance.
8.Interest (Line 16a)
All interests you pay during the tax year on debts related to your business are deducted on this line. The interest that you pay related to a mortgage other than your main home is included on line 16a.
9.Legal and professional businesses (Line 17)
Legal and professional fees that are necessary expenses related to your business are deducted on this line. Office expense (Line 18)
This includes maintenance and janitorial services, office supplies and decors, coffee or bottles water services, etc.
10. Pension and profit-sharing plans (Line 19)
The contributions a business makes solely for their employees are deducted on this line.
11.Rent Expense (Line 20a and 20b)
This includes any amount you pay for the business use of the property you lease. Line 20a includes vehicles, machinery, and equipment.
The amount paid for rental of business properties is deducted on Line 20b.
12. Repairs and maintenance (Line 21)[/u][/b]
Repairs and maintenance you perform to business equipment, office space, and other properties are deducted on this line.
13. Supplies (Line 22)
This includes consumable supplies that your business uses and replaces. Some of the examples of supplies are toner cartridges, business cards, notepads, etc.
14.Taxes and licenses (Line 23)
The amounts paid for business taxes, permits, and licenses are deducted on this line
15.Travel, meals, and entertainment (Line 24 a and b)
Travel expenses are deducted on line 24a, while meals and entertainment are reported on line 24b. Some of the common expenses you deduct from line 24a are lodging, local transportation, air, bus, and rail fare. Deductible business meals reported on line 24b include:
-meal expense when you conduct business with business associate;
-meal expenses when you conduct business with business associate while on a business trip;
-meal expenses when you dine alone while on a business trip.
16.Utilities (Line 25)
These include electricity, gas, water, sewerage, and landfill charges.
17.Wages (Line 26)
Commissions, salaries, bonuses, and other compensation you pay your employees are deducted on this line.
18.Expenses for business use of your home (Line 30)
These include expenses associated with maintaining a home office. The space must be used regularly and exclusively for business so you can claim your deduction.
19.Other expenses (Line 27)
These include regular and necessary business expenses not included on lines 8-26 or 30.