LLC deductions: what counts and how to document it
A defensible LLC deduction needs business purpose, invoice, payment trail and records. Software, advisory, marketing, travel and training must connect to real activity.
A pass-through LLC can deduct under IRC §162 100% of the ordinary and necessary expenses of the activity, with no predefined numerical cap but strict qualitative limits.
One of the most valuable aspects of operating through a US LLC is the ability to deduct legitimate business expenses before calculating your taxable profit. Every dollar you deduct is a dollar you don't pay income tax on. Here's what qualifies.
How LLC deductions work
Your LLC earns revenue. From that revenue, you subtract legitimate business expenses. The result is net profit, which is what you actually declare in your country of residence.
Example:
- LLC revenue: $100,000
- Business expenses: $20,000
- Net profit: $80,000
- You declare $80,000 in your country, not $100,000
The IRS standard: expenses must be "ordinary and necessary" for your business. That means they're common in your industry and helpful for your business operations.
Common deductible expenses
Software and digital tools
Every subscription used for your business:
- Adobe Creative Cloud, Figma, Sketch, or design tools
- GitHub, Vercel, AWS, Google Cloud, or development tools
- Notion, Asana, ClickUp, or productivity tools
- Zoom, Slack, or communication tools
- Accounting software (Wave, QuickBooks, Xero)
- AI tools (ChatGPT Plus, Claude, Midjourney, etc.)
- Domain names, web hosting, CDN services
- VPN services, security tools
Professional services
- Exentax fees (formation and annual maintenance)
- Local accountant or tax advisor fees
- Lawyer fees for contracts or legal questions
- Copywriter, translator, or designer services
- Virtual assistant services
- Advisory fees
Banking and financial fees
- Wire transfer fees (if not using Mercury. Mercury is $0)
- Currency conversion fees (Wise fees are deductible)
- Stripe processing fees (the 2.9% + $0.30 is a legitimate expense)
- PayPal fees
- Slash treasury platform fees
- Credit card annual fees (business cards only)
Equipment and technology
- Computers and laptops (used for business)
- Monitors, keyboards, peripherals
- Cameras, microphones, lighting (for content creators)
- Smartphones (business portion)
- External hard drives and storage
- Ergonomic office equipment (standing desk, chair)
Internet and communications
- Internet service (business portion)
- Phone plan (business portion)
- VPN subscriptions
Education and professional development
- Online courses related to your work (Udemy, Coursera, bootcamps)
- Books and publications
- Conference registrations and travel
- Professional memberships and certifications
Home office (where allowed)
This depends on your country's laws. In some countries, you can deduct a percentage of your rent or mortgage that corresponds to a real home-office area used for the business. Consult your local tax advisor.
Travel (business purpose)
- Flights to meet clients or attend conferences
- Hotels during business trips
- Business meals with clients (often 50% deductible)
- Ground transportation for business
- Coworking space fees
Marketing and business development
- Website development and maintenance
- Social media advertising
- Content marketing (video production, graphic design)
- Business cards and promotional materials
- SEO tools and services
Insurance (business)
- Professional liability insurance (errors & omissions)
- Cyber liability insurance
- General business liability insurance
- Health insurance (in some structures)
Registered Agent and compliance costs
- Registered Agent annual fee (included at Exentax)
- State filing fees (annual report, if applicable)
- Form 5472 preparation fees
- BOI Report filing fees
What you CANNOT deduct
- Personal expenses (groceries, personal vacations, personal clothing)
- Owner's draws/distributions (these aren't expenses. they're how you pay yourself)
- Taxes paid in your country of residence
- Penalties or fines (IRS penalties, traffic tickets)
- Personal insurance premiums (life, personal health in most cases)
- Entertainment expenses with no clear business connection
- Capital contributions to the LLC (these are investments, not expenses)
- Personal loan payments
- Political contributions
At Exentax we prefer to set these boundaries in writing from the start: a clear expense policy, clean accounting categories and enough judgment for the client to know what the LLC can pay and what must stay outside.
The mixed-use rule
Some expenses are partly personal and partly business. For these, you can only deduct the business portion:
| Expense | Business % | Personal % | Example |
|---|---|---|---|
| Internet | 60-80% | 20-40% | Used for work 8h/day, personal 4h/day |
| Phone | 50-70% | 30-50% | Business calls + apps vs personal |
| Home office | Based on sq ft | Remainder | 15m² office / 100m² apartment = 15% |
| Car/transport | By mileage | Remainder | Track business vs personal trips |
| Computer | 80-100% | 0-20% | Primarily business tool |
Keep a log or calculation method for mixed-use expenses. "I think it was about half" is not documentation.
Documentation requirements
Every deductible expense needs documentation:
What constitutes proper documentation
| Document type | Required details | Storage |
|---|---|---|
| Invoice/receipt | Date, vendor, amount, description | Google Drive folder |
| Bank statement | Matching charge to receipt | Mercury export |
| Business purpose note | Why this expense is business-related | Spreadsheet or note |
| Wise conversion record | Exchange rate, fees, business purpose | Wise export |
Record retention periods
- US IRS: Minimum 3 years from filing date, recommended 7 years
- Mexico (SAT): 5 years from the filing date
- Colombia (DIAN): 5 years from the filing date
- Best practice: Keep digital copies indefinitely — storage is essentially free
Freelance developers / SaaS founders
Typical annual deductible expenses: $8,000-$20,000
- Cloud hosting (AWS, Vercel, DigitalOcean): $1,200-$6,000
- Development tools & subscriptions: $1,000-$3,000
- Domain names & SSL: $200-$500
- Equipment depreciation: $1,500-$3,000
- Professional development: $500-$2,000
- Exentax fees: $1,000-$1,500
Content creators (YouTube, Twitch)
Typical annual deductible expenses: $5,000-$15,000
- Camera, microphone, lighting equipment: $2,000-$5,000
- Editing software (Final Cut, Premiere): $500-$1,000
- Studio/recording space: $1,200-$6,000
- Thumbnail design, editing services: $1,000-$3,000
- Internet (business portion): $600-$1,200
Digital marketing agencies
Typical annual deductible expenses: $15,000-$40,000
- Contractor/freelancer payments: $5,000-$20,000
- Ad spend for agency portfolio: $2,000-$5,000
- Marketing tools (SEMrush, Ahrefs, HubSpot): $2,000-$6,000
- Client management software: $500-$1,500
- Travel for client meetings: $2,000-$5,000
The real impact on your wallet
A typical freelancer with an LLC usually has between $5,000 and $25,000 in deductible expenses per year. That can significantly reduce your taxable base in your country of residence.
Impact by income level
| Annual revenue | Typical deductions | Taxable profit | Tax saved (at 30%) |
|---|---|---|---|
| $40,000 | $6,000 | $34,000 | $1,800 |
| $60,000 | $12,000 | $48,000 | $3,600 |
| $80,000 | $18,000 | $62,000 | $5,400 |
| $120,000 | $28,000 | $92,000 | $8,400 |
| $200,000 | $45,000 | $155,000 | $13,500 |
Practical example: If you bill $80,000/year and have $18,000 in deductible expenses, you only declare $62,000 of profit in your country. If your effective tax rate is 30%, that's $5,400 less in taxes just from properly documenting your expenses. Every software subscription, every course, every coworking membership is saving you money.
Common deduction mistakes
- Not claiming expenses because "they're too small": even a small monthly subscription adds up to a meaningful annual deduction from your taxable base
- Not keeping receipts: without documentation, the deduction doesn't count
- Claiming personal expenses as business: this is fraud, not optimization
- Not separating business and personal portions of mixed-use expenses
- Forgetting bank/payment processing fees: Stripe's 2.9% + $0.30 on every transaction is deductible
- Not deducting Exentax fees: our formation and maintenance fees are legitimate business expenses
If something in this structure left you wanting more detail, <a href="/en/blog/us-llc-with-no-federal-tax-when-it-fits">Legal LLC tax optimization: what is real and what is noise? The truth about tax optimization</a> dives into a neighbouring piece of the puzzle we usually keep for a separate write-up.
Deductibility depends on business purpose, records, owner residency and local tax treatment. This guide is not a blank cheque for expenses; it is a framework for keeping company costs documented and defensible.
Bank records must prove every deduction
To deduct expenses, the account setup must separate corporate payments, personal spending and accounting support:
- The best banking stack for deductions is the one that exports clean records. Statements, cards, sub-accounts and accounting integrations matter because they reduce ambiguity when classifying expenses.
- Separate operating spend from owner withdrawals. Advertising, software, contractors and professional fees should not share the same trail as personal transfers or lifestyle expenses.
- Use cards with controls when spend is high-volume. Ecommerce, ads and SaaS subscriptions need vendor-level visibility. A vague bank statement is not enough for a serious deduction file.
- Exentax reviews expense evidence before tax season. Banking data, invoices and bookkeeping categories are reconciled so deductions are not defended from memory.
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The strongest deduction policy is boring in the best sense: business purpose, invoice, payment trail, category and tax treatment recorded at the time of the expense. That discipline protects the LLC far more than a broad list of possible deductions.