Tax Deductions for Consultants

by Dana Severson

You can pay a lot out of pocket when working as a consultant , or a freelancer, for that matter. Many expenses are obvious. You may keep track of what you're buying business purposes, but some expenses can sometimes fall under the radar and you forget to claim them come tax season. Make a list of all the necessities for your business to run smoothly to make sure you’ve got everything covered.

Office

If you use a portion of your home for business, you can deduct it from your taxes. But this portion must be used exclusively for business. It can’t double for something else. Let’s say, for example, the square footage of your office is 10 percent of your home. You can deduct this portion of your rent or mortgage from your taxes. The same can be said for that percentage of property taxes if you own your home.

Bills

Like your office space, you can deduct a portion of your bills for the operation cost of your business. This would include anything from heat to electricity to Internet. But you can only deduct the same portion of these expenses as you did with your rent or mortgage. If 10 percent of your home is used exclusively for business, 10 percent of the cost of these bills can be deducted from your taxes. Of course, a dedicated phone line can be fully deducted from your taxes, since it’s exclusively used for business purposes. The same can be said for the entirety of your bills if you rent office space outside of your home.

Website

The cost of launching and running a website can also be deducted from your taxes. If you paid someone to design the site, the total cost can be deducted from your taxes. The cost incurred from a hosting provider can also be deducted. The same can be said for a domain name and any management tools.

Travel

Any mileage you put on a vehicle for business purposes can be deducted as well. In fact, it’s one of the few expenses you can deduct without receipts. Any time you drive to a client meeting, pick up business supplies or do research, you can deduct it from your taxes. You can even write of tolls and parking, only if they’re for business purposes, not part of your regular commute.

Membership Fees

Career-related memberships sometimes come into question, but they’re a legitimate deduction for any consultant or freelancer. The Society of Professional Consultants, for example, is related to business. Being a member of your local Chamber of Commerce can also be deductible, if you can prove it’s essential to finding new clients. Even fees for networking groups can be written off each year.

Supplies

All the supplies you need to keep your business running smoothly can be deducted as business expenses. Printer ink and paper are two items some consultants forget about. The same can be said for pens, postage and computer software. Computers, printers and office furniture can be deducted at full cost for the year purchased or spread out over a few years through depreciation.

Insurance

If you’re paying for your own medical insurance, don’t forget to write off the expense. In this arena, it’s often best to consult a tax professional, but many of the “E-Z” forms used during tax season can walk you through how to report such expenses.

Advertising

Advertising is often considered part of the operating costs of any consulting business and can be deducted each year. Track everything you spend to market your business and apply it to the business expenses on your tax forms.

Self-Employment Tax

As a small-business owner, you must pay in to both Medicare and Social Security each year, and this is considered "self-employment" tax. You get to deduct half of this tax from your net income -- "net" being the operative word. Your net income is what's left over after you subtract all of your business expenses.

About the Author

Based in Minneapolis, Minn., Dana Severson has been writing marketing materials for small-to-mid-sized businesses since 2005. Prior to this, Severson worked as a manager of business development for a marketing company, developing targeted marketing campaigns for Big G, Betty Crocker and Pillsbury, among others.

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