LLC Board of Advisors: What It Is & How to Get Tax Benefits
Running a small business means you're constantly looking for legitimate ways to reduce your tax burden, and that's not always easy. An LLC board of advisors is a strategic move that many entrepreneurs overlook because it sounds very formal and confusing, but it's a misconception.
A board of advisors is a group of people you formally appoint to provide business guidance and strategic input for your LLC. These can be family members, friends, industry experts, or anyone whose judgment you trust and regularly seek out for business advice.
It provides legitimate tax benefits, is straightforward to establish, and works whether you're a single-member LLC or have multiple members. Here's everything you need to know!
What Is a Board of Advisors for LLC?
A board of advisors for your LLC is a formally appointed group of people who provide strategic guidance, industry insights, and business advice to help you make important decisions. These advisors don't own any part of your limited liability company and aren't employees on your payroll.
Your board can include ANYONE whose business judgment you value. Your spouse, parents, successful friends, industry mentors, professional contacts, and even your children.
This creates a legitimate way to write off family trips and gatherings as business expenses when they're attending board meetings, and it's also a great way to get your spouse or children involved in your business so they have a better understanding of what's going on.
Benefits of a Board of Advisors for LLC
Advisory board members can give you solid advice to improve your business operations, but setting up a board has multiple advantages that go beyond just that:
Tax deductions for meeting expenses: You can deduct legitimate travel expenses related to board meetings, including accommodations and meals, when advisors attend in-person meetings.
Family involvement: Include your spouse, parents, children, or other family members and write off their travel costs when they attend board meetings.
Simple setup process: LLC boards of advisors require minimal paperwork and ongoing compliance from business owners.
Flexible meeting structure: Meet as often as you need for your business (quarterly meetings are typically a good idea and won't raise any red flags!).
Access to expertise without equity: Get valuable business insights from advisors without giving up ownership or paying regular salaries.
Here's how it works in practice.
Let's say you want to take your family to Miami for a long weekend. You schedule a board meeting with your spouse and parents (who are your appointed advisors) to discuss your business expansion plans and marketing strategy for the next quarter.
You can then write off their flights, hotel rooms, and meals as legitimate business expenses since they're attending a formal board meeting with documented business purposes.
This strategy works particularly well if you're a high-income earner who wants to reduce taxable profits before year-end. Learn more about small business tax loopholes.
LLC Boars of Advisors Tax Deduction
When you set up a board of advisors, you can write off all the legitimate business expenses related to your board meetings. This includes flights, hotels, rental cars, meals, and meeting venues when your advisors travel to attend in-person meetings.
You DO need to have a real business purpose for the meeting. You need to discuss business topics and keep records of what you talked about.
However, it IS possible to integrate these meetings with something like a family vacation or a long weekend as long as you follow all the rules properly.
Your advisors don't need to be paid a salary, but you can reimburse them for their travel expenses. These reimbursements are tax-deductible business expenses for your LLC, and the advisors don't have to report the reimbursements as income since they're covering legitimate business travel costs.
LLC Board of Advisors Family Members
You can include family members on your board of advisors. Your spouse, parents, children, siblings, in-laws, or any other family member can serve as an advisor as long as they're directly involved and provide genuine input for your private company.
Many small business owners already ask family members for advice about business decisions, pricing, marketing ideas, or expansion plans. Formalizing these relationships through a board of advisors just makes it official and creates tax benefits.
In other words, it's legal to combine business meetings with family time, but you DO need to document the business aspects properly. We can help with that!
How to Add Board of Advisors to LLC
Setting up a board of advisors for your LLC is straightforward and doesn't require changing your LLC's operating agreement or filing paperwork with the state.
Choose Your Board Members
Start by deciding who you want on your board. Then, create a simple board resolution document that formally appoints each advisor and outlines their role in providing business guidance. You can do this even after you already start your business.
Keep Records
It's very important to keep records of your board meetings, including the date, attendees, topics discussed, and any decisions made. Some states require meeting minutes.
Meet Regularly
You're not legally required to meet with your board members at any set frequency, but quarterly or annual meetings are usually a good idea. Meeting too often and writing off your expenses can raise red flags with the IRS, so keep it reasonable.
What Is an Example of a Board of Advisors for LLC?
One of our clients is taking his family to San Diego for a board meeting. His board includes his wife, kids, and in-laws, all people he regularly asks for business advice.
He has documentation showing the board is required to attend an in-person meeting in San Diego. During the trip, they'll discuss tax strategies, business expansion plans, and other important business topics. After the meeting, they'll make decisions and send a summary of what they discussed to create a formal record.
This documentation protects him if he ever gets audited because it shows the trip had a legitimate business purpose beyond just a family vacation. The business can write off the travel expenses for all the board members who attended.
Who Needs an LLC Board of Advisors?
This strategy works best for:
High-income earners who need to reduce taxable profits
Business owners with low overhead and high profit margins
LLCs with substantial cash flow who want tax deductions
Small business owners who already involve family in business decisions
If your business is just breaking even or operating at a loss, you won't benefit from these additional tax deductions. New businesses with minimal revenue also shouldn't focus on this until they're consistently profitable.
FAQs
What Is the Difference Between Board of Directors and Board of Advisors?
A board of directors has legal authority to make binding decisions for a company and typically owns shares or has voting rights. Board members have fiduciary duties and legal responsibilities. A board of advisors, on the other hand, only provides guidance and recommendations. They don't have decision-making power, don't own part of the business, and don't have legal obligations to the company.
For LLCs, you set up a board of advisors since LLCs don't typically have boards of directors like corporations do.
Does an LLC Require a Board of Advisors?
No, LLCs aren't required to have a board of advisors. This is an optional strategy that some LLC owners choose to get business guidance and create tax deductions. You can operate your LLC perfectly fine without any board at all.
Do Board of Advisors Get Paid?
No, board of advisors members don't need to be paid regular salaries or fees. However, you can reimburse them for legitimate business expenses like travel, meals, and accommodations when they attend board meetings. These reimbursements aren't considered taxable income for the advisors since they're just covering their costs, and they're tax-deductible business expenses for your LLC.
Start Saving Money You Didn't Know You Had in Tax Season
An LLC board of advisors can be a smart tax strategy if you're a profitable business owner who wants to involve family or trusted mentors in an advisory role in your business and take advantage of tax deductions. However, it's important to manage it correctly with proper documentation.
Desi Tax Service® can help you discover this and other tax strategies that fit your specific business situation. Take a look at our services or schedule a call!
