The Ultimate Guide to Consultant Tax Deductions
As an independent consultant, you can save hundreds (even thousands!) of dollars at tax time by deducting business expenses. That’s because every time you write off an expense, you lower your taxable income – putting the money you spend on your business back in your pocket.
A Few Things to Keep in Mind
When it comes to deducting business expenses, there are certain regulations you need to follow:
Business expenses must be both ordinary (commonly accepted in your trade) and necessary (helpful and appropriate for your business). The expenses we list below fall into this category.
The IRS requires documentation of any business expense you deduct. That’s why it’s so important to track your expenses during the year. If you didn’t track your expenses last year, don’t worry; our guide shows you how to retroactively find deductible expenses.
Because there’s always a chance you may be audited, save your business receipts for at least three years after you file your taxes.
Consultant Tax Deductions
Here are the 16 consultant tax deductions you should keep track of throughout the year:
1. Mileage: Keep track of all your business-related trips! While there are many ways to do this (like taking odometer readings before and after trips), the easiest method is to use an app like Stride Tax that records mileage while you drive:
Between your home office and a meeting, as long as you are not commuting to a permanent place of work
Between meetings or from your last meeting back to your home office
On work-related errands, like picking up work supplies
If you choose to take the standard mileage deduction, keep in mind that you cannot deduct individual vehicle expenses like gas, oil changes, car repairs, and car insurance.
2. Home Office: The IRS keeps a close eye on this deduction, so make sure you only write off your office if it’s a dedicated home workspace used solely and regularly for your consulting business.
Have a home office? You can write it off with either:
The simplified option: Multiply the square footage of your office (up to 300 square feet) by the standard rate of $5.
The actual expense method: Add up the expenditures related to your home office, including:
Direct expenses, such as supplies for and repairs to your office. You can deduct these in full.
Indirect expenses, like your mortgage, insurance, and utilities. You’ll divide the total cost of these expenses by the percentage of your home that’s used for business.
3. Business Insurance: Any insurance premiums related to running your business are entirely deductible. For many consultants, this includes professional liability insurance or even insurance for their offices.
4. Software Subscriptions: If you subscribe to any online tools to help you run your business, be sure to keep your receipts–those subscription fees are deductible! This category includes:
Google Drive (or other Google Apps)
Adobe Creative Suite
5. Cell Phone Bills: Do you use your phone exclusively for business? You can fully deduct related expenses (including the phone purchase and monthly bills). If you also use your phone for personal reasons, you should only deduct the portion used for business. The best way to do this is to calculate what percentage of your calls were work-related and then claim that percentage of your bill.
6. Business Cards: Designing and printing business cards is a deductible marketing expense.
7. Printing and Copying: Keep your receipt anytime you print or copy work-related materials like marketing flyers, brochures, and office records. Print jobs are deductible!
8. Office Supplies: Items that you buy for everyday office use, like pens, paper, postage, and notepads, are all deductible. Good news: you can still write these off even if you take the simplified home office deduction!
9. Advertising: When you invest in promoting your business, keep track of how much you spend! Online ads, signs, print ads, radio ads, postcards, and more are all deductible. This includes the cost of hiring someone to design ads for you.
10. Parking: Anytime you have to pay for parking while you’re working, save your receipts; these expenses are deductible. Unfortunately, this doesn’t apply to parking tickets or traffic violations, so drive safely!
11. Tolls: Any toll fees you pay while working are tax deductible as long as they’re not already being reimbursed.
12. Professional development: When you invest in networking and educational opportunities like conferences, seminars, webinars, and professional certifications, you can deduct related signup fees and reading materials. You can even deduct travel and lodging expenses if you travel to a convention or conference. Meals are deductible when you’re away for business, but only up to 50 percent.
13. Subscriptions and memberships: You can write-off the cost of any subscriptions that are useful for your business, including:
Journals and newsletters
Business and consulting books
Research services, like Reuters Thomson
14. Networking costs: Registration for industry conferences and events, as well as merchant fees for exhibiting trade shows and booth expenses, are all deductible.
15. Client Gifts: If you send gifts to your clients after closing a deal, you can write off the expense up to $25.
16. Health Insurance: As long as you don’t get health insurance via a spouse or employer, you can deduct 100 percent of your monthly premiums. Keep in mind that if you receive a government subsidy, you can only write off the amount you pay each month (not the original price of your plan). Note: your health insurance premiums are taken as a personal deduction on Form 1040, NOT deducted as a business expense.
Some Common Expenses You Can’t Deduct
The IRS deems some common expenses as non-deductible. These include:
Personal hygiene expenses, like haircuts, clothing that can be reasonably worn outside of work, and dry cleaning (unless it’s for a uniform)
Legal violation fees, like parking tickets or court fees
Commuting mileage if you work at a permanent office away from home
Life insurance premiums when you are the beneficiary, even if you take the policy out to secure a business loan
An Easy Way to Track Your Expenses
Have you tried our free expense tracker? Stride Tax is an app that makes it simpler than ever to find deductible expenses, take pictures of receipts, and automatically record business mileage.