Consultants are likely to have deductible business expenses that can help you save a lot on your taxes. A checklist can help you account for all the deductions you are entitled to use. These are the main tax deductions for consultants. You can deduct the cost of these services as business expenses.
This includes the cost of hiring an accountant or accountant to help you calculate income tax, as well as the cost of legal services related to your business. Consultants can deduct the costs of operating a home office or rented office space. If they have a room that serves strictly as an office, they can deduct a commensurate amount of household expenses, such as utilities, insurance, mortgage interest and repairs. The cost of office furniture and equipment can be deducted from taxes through depreciation, which means that a portion of the cost is deducted over several years.
Smaller items, such as paper, files and other office supplies, can be deducted. Internet expenses and telephone bills are also deductible. If you choose to use actual expenses, you can deduct gas, insurance, repair costs, and depreciation expenses. You'll need to keep excellent records to support your travel and car expenses.
In particular, keep track of mileage so you can accurately calculate the percentage of total mileage used for business. Also, keep receipts for all your actual expenses. Your consulting practice is likely to involve dozens of in-person meetings with company managers and executives. Many of these meetings can include meals and entertainment.
Independent business consultants who provide counseling may have several types of commercial insurance, including professional liability insurance (PLI) coverage. The PLI, or error and omission insurance, covers legal costs if the policy owner is sued for negligence. For more information, be sure to contact a tax professional for specific information about the tax regulations of your region or state and your industry. Consultants who work as independent contractors on their own can deduct the cost of their health insurance from their taxes.
If you choose this business structure, you must file your taxes by completing Schedule C of Form 1040, Individual Income Tax Return. Even a golf outing can be considered a tax deduction if that's where the consultant and client meet to do business. However, if they've always worked for a company, people who become consultants may be surprised at how much they can deduct from their taxes.