Tax deductions for your LLC: what you can deduct and how to do it right

162 100% of the ordinary and necessary expenses of the activity. Deductible LLC expenses: software subscriptions, coworking, travel, equipment, professional services, health insurance. What qualifies, documentation requirements and IRS rules.

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
Wallester card 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/mortgage corresponding to your workspace. 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) Now is the moment to ask for help. At Exentax we open the case, file what is missing and reply to the relevant authority for you.
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

The mixed-use rule

Some expenses are partly personal and partly business. For these, you can only deduct the business portion:

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

Record retention periods

US IRS: Minimum 3 years from filing date, recommended 7 years
Spain (AEAT): 4 years from the end of the filing period
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

Deduction strategy by profession

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

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, Can you legally pay 0% taxes? The truth about tax optimization dives into a neighbouring piece of the puzzle we usually keep for a separate write-up.

Legal and regulatory references

This article relies on rules currently in force. Main sources for verification:

United States. Treas. Reg. §301.7701-3 (entity classification / check-the-box); IRC §882 (tax on foreign income effectively connected with a US trade or business); IRC §871 (FDAP and withholding on non-residents); IRC §6038A and Treas. Reg. §1.6038A-2 (Form 5472 for 25% foreign-owned and foreign-owned disregarded entities); IRC §7701(b) (tax residency, substantial presence test); 31 U.S.C. §5336 (Corporate Transparency Act, BOI Report to FinCEN).
Spain. Law 35/2006 (LIRPF), arts. 8, 9 (residency), 87 (income attribution), 91 (CFC for individuals); Law 27/2014 (LIS), art. 100 (CFC for companies); Law 58/2003 (LGT), arts. 15 (anti-abuse) and 16 (simulation); Law 5/2022 (Form 720 penalty regime after CJEU C-788/19 of 27/01/2022); RD 1065/2007 (Forms 232 and 720); Order HFP/887/2023 (Form 721 crypto). We close it with you from Exentax: one call, the filing goes out, the archive is set, and the risk stays on paper.
Spain–US treaty. BOE of 22/12/1990 (original DTT); Protocol in force since 27/11/2019 (passive income, limitation on benefits).
EU / OECD. Directive (EU) 2011/16, amended by DAC6 (cross-border arrangements), DAC7 (Directive (EU) 2021/514, digital platforms) and DAC8 (crypto-assets); Directive (EU) 2016/1164 (ATAD: CFC, exit tax, hybrid mismatches); OECD Common Reporting Standard (CRS).
International framework. OECD Model Convention, art. 5 (permanent establishment) and Commentaries; BEPS Action 5 (economic substance); FATF Recommendation 24 (beneficial ownership).

Applying any of these rules to your specific case depends on your tax residency, the LLC's activity and the documentation you keep. This content is informational and does not replace personalized professional advice.

A balanced banking stack: Mercury, Relay, Slash and Wise

There is no perfect account for an LLC. There is the right stack, where each tool plays a role:

Mercury (operated as a fintech with partner banks (Choice Financial Group and Evolve Bank & Trust primarily; Column N.A. on legacy accounts), FDIC via sweep network up to the current limit). Main operating account for non-residents with strong UX, ACH and wires. Still one of the most proven options to open from outside the US.
Relay (backed by Thread Bank, FDIC). Excellent backup account and for envelope-style budgeting: up to 20 sub-accounts and 50 debit cards, deep QuickBooks and Xero integration. If Mercury blocks or asks for KYC review, Relay keeps your operations running.
Slash (backed by Column N.A. (federally chartered, FDIC)). Banking built for online operators: instant virtual cards by vendor, granular spend controls, cashback on digital advertising. The natural complement when you manage Meta Ads, Google Ads or SaaS subscriptions.
Wise Business (multi-currency EMI, not a bank). To collect and pay in EUR, GBP, USD and other currencies with local bank details and mid-market FX. Does not replace a real US account but is unbeatable for international treasury.
Wallester / Revolut Business. Wallester provides corporate cards on a dedicated BIN for high volume. Revolut Business works as a European complement, not as the LLC's main account.

The realistic recommendation: Mercury + Relay as backup + Slash for ad operations + Wise for FX treasury. This setup minimizes block risk and reduces real cost. At Exentax we open and configure this stack as part of incorporation.

Before going further, put numbers on your case: the Exentax calculator compares, in under 2 minutes, your current tax bill with what you would carry running a US LLC properly declared in your country of residence.

> Free consultation, no strings attached

Next steps

Now that you have the full context, the natural next step is to map it against your own situation: what fits, what doesn't, and where the nuances depend on your residency, your activity and your volume. A quick review of your specific case usually saves a lot of noise before taking any structural decision.

Banking and tax facts worth clarifying

Fintech and CRS information evolves; here is the current state:

Notes by provider

Mercury operates with several federally chartered partner banks and FDIC coverage via sweep network: mainly Choice Financial Group and Evolve Bank & Trust, with Column N.A. still in some legacy accounts. Mercury is not itself a bank; it is a fintech platform backed by those partner banks. If Mercury closes an account, the balance is typically returned by paper check mailed to the account holder's registered address, which can be a serious operational problem for non-residents; keep a secondary account (Relay, Wise Business, etc.) as contingency.
Wise ships two clearly different products: Wise Personal and Wise Business. For an LLC you must open Wise Business, not the personal account. Important CRS nuance: a Wise Business held by a US LLC sits outside CRS because the account holder is a US entity and the US is not a CRS participant; the USD side operates via Wise US Inc. (FATCA perimeter, not CRS). In contrast, a Wise Personal opened by an individual tax-resident in Spain or another CRS jurisdiction does trigger CRS reporting via Wise Europe SA (Belgium) on that individual. Opening Wise for your LLC does not bring you into CRS through the LLC; a separate Wise Personal in your own name as a CRS-resident individual does report.
Wallester (Estonia) is a European financial entity with an EMI/issuing-bank licence. Its European IBAN accounts are within the Common Reporting Standard (CRS) and therefore trigger automatic reporting to the tax administration of the holder's country of residence.
Payoneer operates through European entities (Payoneer Europe Ltd, Ireland) that are also in scope for CRS for clients resident in participating jurisdictions.
Revolut Business: when paired with a US LLC, it operates under Revolut Technologies Inc. with Lead Bank as its US banking partner. The account delivered is a US account (routing + account number); no European IBAN is issued to a US LLC. The European IBANs (Lithuanian, Belgian) belong to Revolut Bank UAB and are issued to European clients of the group. If you are offered a European IBAN tied to your LLC, confirm exactly which legal entity holds that account and which regime it reports under.
Zero tax: no LLC structure delivers "zero tax" if you live in a country with CFC/tax transparency or income attribution rules. What you achieve is no double taxation and correct reporting at residence, not elimination.

Legal & procedural facts

FinCEN and IRS reporting requirements moved recently; the current state is:

BOI / Corporate Transparency Act: your LLC is NOT required to file (a competitive advantage). After FinCEN's March 2025 interim final rule, the BOI Report obligation was narrowed to "foreign reporting companies" (entities formed OUTSIDE the US and registered to do business in a state). A US-formed LLC owned by a non-resident does NOT file the BOI Report: one fewer filing on your calendar, less paperwork, and a cleaner structure than ever. If your LLC was formed before March 2025 and you already filed BOI, keep the acknowledgement. The regulatory status can change again: we monitor FinCEN.gov on every filing and, if the obligation comes back, we handle it at no extra cost. Current status verifiable at fincen.gov/boi.
Form 5472 + pro-forma 1120. For a Single-Member LLC owned by a non-resident, the final regulations of Treas. Reg. §1.6038A-1 (in force since 2017) treat the LLC as a corporation for 5472 purposes. Procedure: pro-forma Form 1120 (header only: name, address, EIN, tax year) with Form 5472 attached. It is filed by certified mail or fax to the IRS Service Center in Ogden, Utah, not e-filed via standard MeF. Due date: April 15; extension via Form 7004 to October 15. Penalty: $25,000 per form per year, plus $25,000 per additional 30 days of non-filing after IRS notice.
Substantive Form 1120. Only applies if the LLC has filed a check-the-box election to C-Corp (Form 8832): it then pays 21 % federal corporate tax and files a substantive 1120. A standard disregarded LLC does not file a substantive 1120 and does not pay federal corporate tax.
EIN and notice. Without an EIN you cannot file 5472 or BOI. The IRS does not warn before imposing penalties; you find out when an EIN is flagged or a later filing is rejected. And if a notice does land, at Exentax we keep the dossier ready so you reply in hours, not weeks.

Balanced banking stack: Mercury, Relay, Slash and Wise

Read this section as a checklist with teeth: each point flags a real failure mode we have seen in cross-border LLC files. Skip none of them - most reassessments and account closures we clean up later trace back to one of these items.

Deductible expenses in an LLC: what really qualifies and what you will defend in an audit

At Exentax we have closed clients in exactly this spot at zero penalty. Speaking up early pays off — and saves you five figures.

The IRS rule is deceptively simple: "ordinary and necessary" for your trade. But the devil is in documentation, payment method and consistency. Here is what a cleanly run LLC actually deducts - and the mistakes we see almost weekly.

Clearly deductible. Software (Notion, Figma, Stripe fees, hosting), advertising (Meta, Google, LinkedIn), contractors with W-9 or W-8BEN, platform fees, professional subscriptions, computer equipment used 100% for business, accounting and advisory. Pay from the LLC account, invoice in the LLC's name, stored in Drive or similar, tagged by category.
Conditional deductions. Coworking and office (fully), home office (proportion of space exclusively used, with documentation), business travel (ticket, hotel, reasonable per diem; "me and my family in Bali" does not count), training specific to your activity, client meals (50% federal deductible).
Problematic without substance. Personal car, non-uniform clothing, mixed personal expenses, "advisory" paid to family without real service or W-9, trips without documented agenda. The LLC is transparent to the IRS and opaque to the bank - both cross data in an audit. And if a notice does land, at Exentax we keep the dossier ready so you reply in hours, not weeks.
Disregarded vs C-Corp: the nuance. If your LLC is disregarded (single-member), expenses reduce Schedule C or attributed income. If you elected C-Corp via form 8832, they reduce corporate profit taxed at 21% federal. Documentation requirements are identical.

What we are asked the most

Do I have to keep every invoice? Yes, digital format is enough. IRS policy: 3 years from filing date, 6 if you underreported >25% of income, indefinite if you did not file. Keep a Drive organised by year/category.

Can I deduct my entire rent as home office? No, only the percentage of space used exclusively and regularly for work. Documentation: floor plan, photos, usage log. The rule is strict and inspected.

At Exentax we set up your LLC's bookkeeping from month one with chart of accounts, expense policy and digital archive - so deductions are defensible and not aspirational.

Legal and procedural facts

On the same topic

What if HMRC, the IRS or my local tax authority asks about my LLC?

It's the question every client raises in the first consultation, and the short answer is: your LLC isn't opaque, and a properly declared structure closes any inquiry in standard forms. Your tax authority can request the state Certificate of Formation (Wyoming, Delaware or New Mexico), the EIN issued by the IRS, the signed Operating Agreement, the Mercury or Wise statements for the year, the Form 5472 plus pro-forma 1120 you filed, and the bookkeeping that reconciles income, expenses and movements. If all of that exists and is delivered in order, the inquiry doesn't escalate.

What tax authorities do pursue, and rightly, is sham ownership (nominees, paper residency) and undeclared foreign accounts. A well-structured LLC is the opposite: you appear as beneficial owner in the BOI Report when applicable (verifiable at fincen.gov/boi), you sign the bank accounts and you declare the income where you actually live. The structure is registered with the state Secretary of State, with the IRS and, when European banks are involved, inside the CRS perimeter of the OECD standard.

The mistake that really sinks an inquiry isn't having an LLC; it's not attributing the income correctly in your domestic return, not declaring foreign accounts when the year-end balance exceeds the local threshold (€50,000 in Spain via Modelo 720; the equivalent FBAR / Form 8938 in the US for residents; T1135 in Canada), and not documenting related-party transactions between the member and the LLC. Those three fronts are worth closing before any request arrives, not after.

## What an LLC does NOT do

- It does not exempt you from tax in your country of residence. If you live in Spain, France, Germany or Portugal, you are taxed there on worldwide income. The LLC organises your US side (zero federal tax for non-resident SMLLC pass-through, absent Effectively Connected Income); it does not switch off your domestic taxation. The income tax is computed on the attributed profit, not on the dividends actually paid.

- It is not an offshore vehicle or a BEPS scheme. It is a US entity recognised by the IRS, registered in a specific state with physical address, registered agent and annual informational filings. Classic offshore jurisdictions (BVI, Belize, Seychelles) leave no public trace; an LLC leaves a trace in five different places.

- It does not protect you if you commingle funds. The pierce the corporate veil doctrine kicks in as soon as a judge sees the LLC and the member behaving as the same wallet: mixed accounts, personal expenses paid from the LLC, no signed Operating Agreement, no bookkeeping. Three suspicious transactions are enough.

- It does not save you social security contributions at home. If you are self-employed in Spain, France or Germany, your monthly social contribution remains identical. The LLC handles the trading side with international clients; your personal contribution is independent.

- It does not exempt you from declaring foreign accounts. Spain residents file Modelo 720 / 721; UK residents, the SA106; Portugal residents, the Anexo J of Modelo 3 IRS; Germany residents, the Anlage AUS. Those obligations belong to the individual, not to the LLC.

At Exentax we cover those five fronts every year alongside the US federal calendar (Form 5472, pro-forma 1120, FBAR, state Annual Report and BOI Report when applicable). The goal is that no inquiry finds a loose end and that the structure withstands a 5-to-7-year retroactive review.

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