How To Avoid LLC Taxes
Avoiding LLC taxes entirely isn’t possible—or legal—but you can use smart tax strategies to minimize the taxes your LLC pays. How your LLC is taxed depends on your state rules and your tax classification with the IRS.
✅ How to Minimize LLC Taxes
1. Choose the Right Tax Classification
- By default, a single-member LLC is taxed as a sole proprietorship; multi-member LLCs as a partnership.
- You can elect to be taxed as an S-Corporation or C-Corporation by filing IRS Form 2553 or 8832.
- S-Corp status can reduce self-employment taxes.
2. Deduct Business Expenses
- Track and deduct legitimate expenses: office supplies, travel, marketing, business use of home, etc.
3. Pay Yourself Strategically
- If S-Corp elected, pay yourself a reasonable salary and take the rest as distributions, which can save on payroll taxes.
4. Take Advantage of Tax Credits
- Research credits like the Research & Development Credit, energy credits, or hiring credits.
5. Contribute to Retirement Plans
- Set up a Solo 401(k) or SEP IRA through your LLC to reduce taxable income.
6. Stay Compliant With State Taxes
- Some states have franchise taxes or minimum fees on LLCs; be aware and plan accordingly.
7. Hire a Tax Professional
- A CPA or tax advisor can tailor tax strategies for your business and help avoid costly mistakes.
What You Can’t Avoid
- Paying income taxes on profits.
- Potential self-employment taxes (unless electing S-Corp).