Passing expenses through a business is one of the easiest ways to achieve write offs on your tax return. Making more items and services “business expenses” allows those costs to be written off of your total profit at the end of the year; the amount you spend on the business is deducted from your total taxable income so that you pay less in tax for the year.
For a single member LLC that does NOT make an S-Corp election, this is done on IRS form Schedule C, and attached to your household Form 1040. Schedule C is a worksheet that will ask you several questions about the categories of expenses that you had for your business such as business use of your home, office equipment and furniture, travel, and any costs to maintain your business or professional license. After taking into account all of your deductions and income from the business, you will report the final number on your 1040 as your “Profit or Loss From a Business”. In summary, the income from the business passes through to you personally, by way of Schedule C.
For an LLC that DOES make an S-Corp Election, these business expenses are reported by the business itself on an S Corp reporting form, Form 1120-S. This is different than a Schedule C, in that the income is not passing through to an individual, but being reported directly by the business as business income. Making an S-Corp election may save you and your business some money on certain tax items, but you should discuss making this election with your CPA or accountant—it is definitely not for everyone, and a decision to do so should be based on the advice of a qualified professional
If you have any questions about your LLC and how the business should be reporting, San Antonio LLC Formation and Management Attorney Nate Gilbert can help point you and your business in the right direction. To learn more about LLCs and Texas Business Law, Click Here. To contact Nate directly, Click Here.