If you clicked on this blog, you’re probably a new business owner or someone thinking about taking the leap into entrepreneurship. And like a lot of people in that position, you might be a little confused about how taxes work.
Hey, we get it! Taxes can be complicated. But trust us when we tell you—they don’t have to be.
With the right information, you can tackle your taxes calmly and confidently. That sounds nice, right?
Well, one of the issues we see time and time again is confusion around whether or not you can write off business expenses when you’re not registered as an LLC (Limited Liability Company).
We’re here to answer this question clearly, so you can finally make informed business decisions.
Alright, enough chit-chat. Let’s break down the big questions.
Can I write off business expenses without an LLC?
We’ll cut straight to the chase—yes, you can write off business expenses if you’re not operating as an LLC.
The trouble is that many people don’t realize this. They jump the gun and register their companies as LLCs when it’s not necessary. In fact, as a sole proprietor or partnership, you can begin operating without filing anything formal in your state (apart from standard business licenses and permits, of course).
But many new businesses who’d rather remain a sole proprietorship or partnership register as an LLC because they think it’s required by law or they don’t want to miss out on some great tax deductions. Unfortunately, this often leads to higher compliance fees and more complex tax filings.
But you don’t have to leave money on the table like so many others.
Here’s how we see it: you’ve invested your time and money into creating a business you’re proud of. Why should you give more money to the IRS than you have to, for a business label you don’t even need?
Here’s how it works: when you launch your business on your own, you’re automatically classed as a sole proprietor (your personal and business assets are not legally separated).
If you start a business as a partnership, you’re automatically classed as a general partnership (where two or more individuals share ownership). This is the same for every new entrepreneur in the U.S.
Your tax deductions are not affected as a sole proprietor or partnership. When April 15th rolls around, you’re fully entitled to claim business expenses as deductions on your income—LLC or not!
Okay…so how do I write off business expenses
without an LLC?
Great question! We’re glad you asked.
And the answer is really simple—as a sole proprietor, you’ll write off your business expenses with the Profit or Loss from Business (Sole Proprietorship) form from the IRS. You’ll probably know this better as a Schedule C.
The trusty Schedule C has been the best pal of freelancers since 1950. In Part II of the form, you’ll report your gross sales and business expenses to be written off. It’s as easy as that!
This handy form will also help you figure out your net income (your earnings minus your business expenses). The sum you’re left with is what you’ll actually be taxed on.
Your Schedule C will need to be submitted alongside your individual tax return (form 1040) on or before April 15th.
If you’re in a partnership, the process is similar but a little different. You’ll file a U.S. Return of Partnership income form (better known as a 1065) by March 15th (or by September 15th if an extension is granted).
Individual partners will also need to file their share of profits or losses using a Supplemental Income and Loss form (aka a Schedule E). This is due by April 15th (or October 15th with an extension).
See? It’s not that complicated, right? …right?
What business expenses can I write off as a sole proprietor or partnership?
Generally speaking, you can deduct a wide range of business expenses from your income. But each business expense has to be ordinary and necessary per IRC 162(a).
So, buying a pet llama as an office mascot probably won’t fly with the IRS. That one will have to come out of your own pocket. (sigh) Every system has its flaws…
Here are some examples of business expenses that are tax deductible:
- Phone and wifi bills
- Heating expenses
- Travel costs
- Stationery
- Business insurance premiums
- Health insurance premiums
- Marketing and advertising
- Home office supplies
- Business meals
- Company cars
- Employee training
- Staff salaries
- Loan interest
- Unpaid invoices
- And much more!
When you claim deductible business expenses, they’ll be subtracted from your qualified business income. With a lower taxable income, you’ll have a lower tax bill—yay!
But it’s important to keep in mind that certain costs may seem ordinary and necessary but are actually not. These non-deductible expenses include:
- Life insurance premiums
- Home internet and phone costs (only the small amount used for business can be deducted, not the full amount)
- Gifts to clients (There is a deduction up to $25/client. This amount hasn’t been updated for inflation since 1962, the value today would be $255)
- Sporting events/concerts (even is used to woo clients)
- Personal club memberships (even if used for networking)
- Company merch (unless used specifically for promotional purposes)
- Political contributions
For more info, get your hands on Tax Savvy Jessica’s Digital Tax Planner with a built-in tax deduction guide with a whopping 101 tax deductions for coaches and consultants.
Key takeaway
By now, we hope it’s clear that you don’t have to register your business as an LLC to be able to write off your business expenses. You can continue to operate as a sole proprietor or partnership (if that’s what you prefer) without missing out on the benefits of tax deductions.
You can declare each deductible business expense by filling out a Schedule C and 1040 form (if you’re a sole proprietor) and a Schedule E and 1065 form (if you’re a partnership). All forms will need to be submitted before their deadline. Form 1065 is due by March 15th while Schedule E is due by April 15.
How Tax Savvy Jessica can help you get up to speed with your taxes
If you need help managing your taxes as a new business, Tax Savvy Jessica is here to take the wheel.
With a tax strategy from TSJ, you can rest easy knowing you’re saving every dime you can on your taxes. You can close the door on research, paperwork, or filing your business tax return—that’s our job now. You just focus on growing your business and doing what you do best.
Ready to get started? Take our Fit + Pricing Quiz to find the package that fits your needs.
