How LLCs Are Taxed
An LLC itself doesn't pay taxes — it's a pass-through entity. A single-member LLC reports on Schedule C (same as a sole proprietorship). A multi-member LLC files Form 1065 and issues K-1s to members. LLCs can also elect to be taxed as an S-corp (Form 2553) or C-corp (Form 8832). The available deductions are the same regardless of election, but how you take them differs. S-corp election can reduce self-employment tax above ~$50-60K net profit.Common LLC Deductions
Startup costs (up to $5,000 deductible in year one, remainder amortized over 15 years). Operating expenses: rent, utilities, internet, phone, insurance, office supplies, software subscriptions. Professional services: accountant, lawyer, bookkeeper. Marketing: advertising, website, business cards, SEO. Vehicle: mileage or actual expenses. Travel: flights, hotels, meals (50%). Home office: regular or simplified method. Retirement: SEP IRA, Solo 401(k), SIMPLE IRA contributions.Example: First-Year LLC
You start a consulting LLC. Year one expenses: LLC filing fee $100, website $500, laptop $1,200, software subscriptions $1,800, coworking space $3,600, professional liability insurance $1,200, accountant $1,500, marketing $2,000, mileage (5,000 miles x $0.70) $3,500, home office ($5/sq ft x 150 sq ft) $750. Total deductions: $16,150. On $80,000 revenue, your taxable income drops to $63,850.
Self-Employment Tax for LLC Members
Single-member LLC owners and general partners in multi-member LLCs pay self-employment tax (15.3%) on their share of LLC income. This is in addition to income tax. The QBI deduction (Section 199A) can reduce income tax by up to 20% of qualified business income. Neither the QBI deduction nor itemized deductions reduce SE tax. Consider S-corp election if your net profit consistently exceeds $50,000-60,000.
Single-member LLC owners and general partners in multi-member LLCs pay self-employment tax (15.3%) on their share of LLC income. This is in addition to income tax. The QBI deduction (Section 199A) can reduce income tax by up to 20% of qualified business income. Neither the QBI deduction nor itemized deductions reduce SE tax. Consider S-corp election if your net profit consistently exceeds $50,000-60,000.
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