Many consultants are independent contractors or business owners. As such, they don't have an employer covering their costs or reimbursing work expenses. Instead, they can use those costs to offset their income and lower their tax bill.
Don't let those write-offs fall through the cracks. Familiarize yourself with common tax deductions for consultants and track those expenses so you can take advantage of every tax break at year-end.
Common tax deductions for consultants
Here are several consultant tax deductions you should track throughout the year.
Many consultants spend a lot of time traveling to meet with clients. Some common deductible travel expenses include the cost of:
- Hotel stays
- Airline tickets
- Rental cars
- Baggage fees
- Laundry and dry cleaning during your trip
- Taxi fares or rideshare fees to and from the airport or while on your trip
If you use your vehicle to travel to business meetings or run other work-related errands, you can deduct the cost of using your car for work.
You have two options for deducting those expenses:
- Standard mileage rate. Track your business miles for the year, then multiply those miles by a standard mileage rate set annually by the IRS.
- Actual expense method. Add up all the expenses of owning and operating your vehicle for the year, such as loan interest or lease payments, auto insurance, fuel, maintenance and repairs, and registration fees. Then multiply this figure by the percentage of the vehicle's business use.
Whichever method you choose, the IRS requires you to track your business miles. You can do this with an app or a manual log.
You can also deduct the cost of meals while traveling for business, taking clients to lunch or dinner, or hosting a meal for prospective clients.
Business meals can't be lavish, and your deduction is usually limited to 50% of the cost of the meal. Be sure to keep records documenting the business purpose of the meal.
You may carry several types of business insurance, such as general liability, professional liability, and property coverage for your computer and other business property. You can deduct the premiums you pay for this coverage.
You can also deduct self-employed health insurance premiums if you pay for your health, dental, vision, and long-term care insurance.
You can generally write off the cost of your desktop or laptop computer, printer, and software you use to run your consulting business. To write off the total cost of the computer equipment or software, you should use it more than 50% of the time for business. If the equipment is mainly for personal use, you can't deduct it.
Office supplies, such as pens and paper, stamps, ink cartridges, calendars, tape, file folders, and cleaning supplies are all deductible business expenses.
Home office expenses
You can write off the cost of maintaining a home office as long as the space is dedicated solely to work. There are two ways to deduct home office expenses:
- Traditional method. Calculate the percentage of your home dedicated to your home office, then multiply the result by your associated costs. Those costs include rent or mortgage interest, real estate taxes, insurance, utilities, maintenance, and repairs.
- Simplified method. Deduct $5 per square foot of dedicated workspace, up to a maximum of 300 square feet.
Any costs you pay to advertise your service or promote your business are deductible in the year you pay them. This can include printing business cards, setting up and hosting your website, and paying to promote your services in digital or printed ads.
The list above isn't an exhaustive list of deductible expenses. For more details on which payments are deductible and the rules for deducting them, be sure to check out IRS Publication 535, Business Expenses and Publication 463, Travel, Gift, and Car Expenses.
It's also a good idea to work with a tax professional, such as a CPA or enrolled agent (EA). It's their job to know what tax breaks are available and help you take advantage of every available deduction and credit.