As a consultant, you are likely to have a variety of deductible business expenses that can help you save a lot on your taxes. To make sure you don't miss out on any deductions, it is important to create a checklist of all the deductions you are entitled to use. This article will provide an overview of the main tax deductions for consultants, so you can make sure you are taking full advantage of them. The cost of hiring an accountant or tax specialist to help you calculate income tax is deductible.
This also applies to the cost of legal services related to your business. If you have a home office or rent office space, the cost of this can be deducted from your taxes. If you have a room in your home that serves strictly as an office, you 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 also 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. To make sure you get the most out of these deductions, it is important 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, which are also deductible from taxes.
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 about the tax regulations in your region or state and your industry, be sure to contact a tax professional. Consultants who work as independent contractors on their own can deduct the cost of their health insurance from their taxes. If this is your 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.