Running an LLC comes with real bookkeeping responsibilities — more than a sole proprietorship, less than a corporation. This guide covers what you need to do, how to do it, and what mistakes to avoid.
Why LLCs need separate bookkeeping
The moment you form an LLC, you create a legal separation between you and your business. That separation only holds up if your finances reflect it.
Mixing personal and business finances — known as piercing the corporate veil — can expose you to personal liability and make your taxes a nightmare. Keep them separate. Always.
This means: a dedicated business bank account, a business credit card if you use one, and separate records for everything your LLC earns and spends.
Setting up your business bank account
Open a business checking account as soon as your LLC is formed. You'll need your EIN (Employer Identification Number) and your LLC formation documents.
Most banks offer free or low-cost business checking. Mercury, Relay, and Chase Business are popular options for small LLCs.
Once your business account is open, all business income goes in, all business expenses come out.
What expenses can your LLC deduct?
Common deductible business expenses include:
- Home office (if you work from home regularly)
- Business equipment and software
- Professional services (accountant, lawyer, consultant)
- Business travel and mileage
- Marketing and advertising
- Business meals (50% deductible)
- Phone and internet (business portion)
- Professional development and education
The rule is simple: if the expense is ordinary and necessary for your business, it's probably deductible. When in doubt, track it and let your accountant decide.
Paying yourself from your LLC
How you pay yourself depends on how your LLC is taxed.
Single-member LLC (default): You take an owner's draw — a transfer from your business account to your personal account. This is not a salary and no taxes are withheld. You pay self-employment taxes quarterly on your profits.
LLC taxed as S-corp: You pay yourself a reasonable salary and can take additional distributions above that. More complex but can save on self-employment taxes at higher income levels.
Multi-member LLC: Each member takes draws based on their ownership percentage, per the operating agreement.
Quarterly estimated taxes
If your LLC is taxed as a sole proprietorship or partnership, you're responsible for paying taxes quarterly — not just at year end.
The IRS requires estimated tax payments if you expect to owe more than $1,000 in taxes for the year. Payments are due in April, June, September, and January.
A simple rule of thumb: set aside 25-30% of your net profit for taxes each quarter. Pay the IRS quarterly and you won't get hit with a penalty at year end.
What records to keep and for how long
Keep these records for at least 3 years (7 if you significantly underreported income):
- Bank statements
- Receipts for all business expenses
- Invoices sent and received
- Payroll records (if applicable)
- Tax returns and supporting documents
- Contracts and agreements
Digital is fine. Scan receipts, store bank statements in a folder, keep everything in a cloud storage service. The IRS accepts digital records.
When to hire a bookkeeper
You need a bookkeeper when:
- You're spending more than 2-3 hours per week on bookkeeping
- You're not sure if your books are accurate
- Tax time is always a scramble
- Your revenue is growing and transactions are getting complex
- You've mixed personal and business expenses and need help untangling them
A good bookkeeper pays for themselves in the time you save and the tax deductions they catch.