Self-employed individuals, freelancers, independent contractors, and LLC owners frequently ask what they can deduct. The starting point is simple: business deductions generally reduce taxable business profit, not your taxes dollar for dollar.
1. What makes an expense deductible?
The IRS generally requires expenses to be ordinary (common and accepted in your business) and necessary (helpful and appropriate). A payment from a business bank account is not enough by itself.
| Expense | General treatment |
|---|---|
| Advertising, website and software | Usually deductible if business-related |
| Office supplies and professional fees | Usually deductible |
| Business insurance | Generally deductible |
| Phone and internet | Business-use portion only |
| Vehicle costs | Eligible business use; special calculations apply |
| Home office | Only if IRS requirements are met |
| Client or travel meals | Usually limited to 50% when eligible |
| Large equipment purchases | May require depreciation or special expensing rules |
Learn more: Business vehicle deductions · Home office deductions · Business travel and meals.
2. Does an LLC change what is deductible?
Not automatically. A single-member LLC owned by an individual is generally taxed like a sole proprietorship unless it elects another tax classification. A multi-member LLC is generally treated as a partnership by default; an LLC may also elect corporate treatment. Personal spending does not become deductible merely because an LLC paid for it.
3. Simple example
| Item | Amount |
|---|---|
| Revenue from customers | $50,000 |
| Allowable business expenses | −$12,000 |
| Preliminary business profit | $38,000 |
The deduction is $12,000, not a $12,000 refund. Other tax calculations may still apply.
4. Common mistakes and misunderstandings
- “A business credit card makes every purchase deductible.” No—personal purchases remain personal.
- “A write-off means the IRS reimburses the entire cost.” No—a deduction generally reduces profit or taxable income.
- “Every mile in my car is business mileage.” Ordinary commuting and personal driving generally do not qualify.
- “I work from home, so my entire living area is deductible.” A qualifying home office generally requires regular and exclusive business use.
- “My LLC can deduct my personal bills.” Not merely because the bills were paid by an LLC.
- “I can immediately deduct every major piece of equipment.” Depreciation and expensing elections may apply.
5. What to prepare before meeting your tax preparer
Collect total income including cash, summarize expenses by category, retain receipts and payment records, and list mileage, home-office measurements, and large equipment purchases separately. Use the free Schedule C preparation worksheet to organize annual amounts without having to decide the final tax treatment yourself.
Official reference: IRS Publication 334 — Tax Guide for Small Business.