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As a self-employed full-time or part-time consultant, ensuring you get the most out of the tax deductions available to you can help you maximize your income. Almost everything you’ll buy for the business is deductible, but it’s important to know how--and when-- to deduct them from your taxes.
The following are a number of tips on how to maximize your deductions as a consultant:
Personal expenses are not deductible. Make sure you separate out your business expenses and your personal expenses. The “one big box” of all receipts no longer works.
Driving for your business is deductible, except if you are commuting to a business where you do your work. The only exception is if you have a home office. Of course, driving to meet with clients is deductible and can be deducted at a standard mileage rate set every year by the IRS.
You can deduct business office expenses, whether rent an office or have a home office. For consultants working out of a home office, you can deduct some of your rent which is ordinarily non-deductible.
Even though you can’t deduct a one-line phone in your home, you can deduct some consulting business-related costs such as call waiting and other features. A second, dedicated business line or cell phone is deductible.
Business travel, other than car expense, is deductible. For example, when you go out of town for consulting business, you can deduct transportation and hotel costs, plus 50% of your meals.
The IRS is less lenient on meals and entertainment than ever and consultants need to take heed. You must have a serious business discussion before, during, or soon after the event, and then you may deduct only 50% of the expense.
Business gifts are deductible, up to $25 per person and reasonable costs for a company-wide gift.
You can deduct the cost of magazines, journals, newsletters, and other subscriptions useful for your consulting business.
Depreciation deductions can save you a lot of money on large purchases, such as cars and computers. Good news for small businesses: the IRS enables small businesses to deduct the entire cost of the property in one year, instead of spread over sveral years for larger businesses.
Supplies that you’ll use up in one year or less such as post-its, pens and paper, and postage are business items and therefore deductible
Fees paid to attorneys, accountants, and other professionals, as long it is a valid business expense
You can deduct insurance, such as business liability, homeowner's, or renter’s insurance.
Promotion expenses are almost always deductible, including business Web site design and maintenance for your consulting services, business cards. handouts, and much more.