Keep more of your money: 5 tax write-offs for consultants
Being your own boss is the dream of many. You set your own hours, create the office that suits your working style, and focus on the skills that make you love your career. There are elements that can be stressful. You’ll have to handle the aspects of business that other departments might have handled if you worked for a firm, and of course, there’s no escape from taxes. Fortunately, there are some tax write-offs independent consultants can put to their advantage.
The consulting industry is growing. There are nearly half a million consultants currently working in the United States. Of those employed, almost 42% are women, and over 30% are minorities. IT consulting has grown by 3.2% annually for the past five years.
If you’ve developed expertise in your field and have thought about moving into a career in consulting, you might be wondering how to handle taxes as an independent consultant. After all, tax is already complicated when you’re working for a company; it can become more complex when you’re working for yourself.
Fortunately, there are a few ways to make things a little less confusing when you’re self-employed. You might even save a little money by tracking your expenses and filing for deductions. Here are some common types of write-offs independent consultants might consider.
#1 - Meetings
Remember all those meetings that should have been emails? As a consultant, you might want to keep the meetings. When you meet with clients, there will often be costs. Meals at a restaurant where you review a presentation or a golf outing where you discuss an upcoming project could both be considered potential deductions. For any meeting you want to take as a deduction, you’ll want to keep thorough records. Retain all the receipts you can and itemize expenses in your accounting system.
#2 - Home office
This entry may seem unsurprising, but don’t be fooled. It’s a bit complex. Sure, a home office is essentially any workspace that you regularly and exclusively use for your business. However, because the idea of a home office is on the honor system, you’ll have to be prepared to justify it to the IRS if you’re ever called up for an audit.
Additionally, calculating the exact amount you can deduct gets a bit tricky. The IRS offers a few different options for claiming this deductible, and your best bet is to calculate each way to find which saves you the most money. The simplified option, for example, allows you to deduct $5 per square foot for your office up to $1500. However, this may not be as much money as you could save if you used the standard method and calculated your actual home office expenses.
| Being your own boss also means unique opportunities to save on your tax bill.
#3 - Health insurance premiums
When you’re self-employed, it’s unlikely you’ll still receive health insurance benefits through an employer. If you’re not eligible for coverage through a spouse or family members plan, you’ll now pay for your health insurance. Fortunately, the IRS allows you to deduct premiums paid for health, dental, and long-term care plans.
Your deductible doesn’t end with your coverage. Some consultants purchase policies that cover spouses, dependents, other family members, and children who may not be dependents. These premiums can also be deducted using the Self-Employed Health Insurance Deduction Worksheet.
#4 - Networking
Chances are you’ve built up quite a network if you’re starting a consulting business after spending time in the corporate world. However, maintaining that network is still important. Launching your business may also mean expanding your horizons to new markets. One great way to do that is to attend conferences. The good news is your travel expenses are deductible. You can deduct plane tickets, the cost of renting a car, a hotel stay, and parking fees and meals.
While you’re attending conferences, also consider webinars and seminars. These are great places to network and help you stay up-to-date with the trends and innovations in your industry. They can also help reduce your tax bill, as the costs of attending these events can also be deducted.
#5 - Website
In 2022, a website is a vital tool. It provides needed credibility and helps potential clients find and contact you. Building a custom website can be expensive, and DIY platforms can have mixed results. Some consultants split the difference and try to find a marketing firm to set up a simple website that’s easy to maintain.
Whatever you choose, be sure to keep detailed records of your expenses. Design costs, hosting, maintenance, custom inboxes, and annual domain renewal fees can all add up quickly. However, these can also work in your favor to help reduce your tax bill.
Other deductions still apply
Being self-employed means being your own boss. It also means running your own business, which could open the door for other potential deductions. While staying on top of your taxes is just one of the tasks you’ll have to manage as an independent consultant, it’s not one you’ll want to forget. Late fees can be a real pain and cut down on any savings deductions can bring. With ComplYant, you’ll never miss a deadline. Get started managing your taxes with a free account today.