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.
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.
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.
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.
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.
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.
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.
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 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.
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.
- CBS Money Watch: Tax Deductions for Freelancers and Consultants
- Los Angeles Times: So You’re a Consultant Now? Deduct Like One
- Chicago Tribune: Tax Tips for Consultants and Freelancers
- Entrepreneur: 75 Items You May Be Able to Deduct from Your Taxes
- Internal Revenue Service: Like Share Print Self-Employment Tax (Social Security and Medicare Taxes)
- Internal Revenue Service. "Tax Reform: What’s New for Your Business," Pages 3–4. Accessed Oct. 19, 2019.
- Internal Revenue Service. "Tax Reform Provisions that Affect Individuals." Accessed Oct. 19, 2019.
- Internal Revenue Service. "Tax Cuts and Jobs Act, Provision 11011 Section 199A - Qualified Business Income Deduction FAQs." Accessed Oct. 9, 2019.
- United States Congress. "H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018." Accessed Oct. 9, 2019.
- Social Security Administration. "If You Are Self-Employed," Page 1. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Topic No. 554 Self-Employment Tax." Accessed Oct. 9, 2019.
- Internal Revenue Service. "Publication 587 (2018), Business Use of Your Home." Accessed Oct. 9, 2019.
- Internal Revenue Service. "About Form 8829, Expenses for Business Use of Your Home." Accessed Oct. 9, 2019.
- Internal Revenue Service. "Publication 535 (2019), Business Expenses." Accessed March 16, 2020.
- Internal Revenue Service. "Travel, Gift, and Car Expenses," Page 5. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Tax Guide for Small Business," Page 40. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)," Page 2. Accessed Oct. 9, 2019.
- Internal Revenue Service. "Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)," Page 18. Accessed Oct. 9, 2019.
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.