Consultants are likely to have deductible business expenses that can help them save big on their taxes. A checklist can help them account for every deduction they're entitled to use. These are the main tax deductions for consultants. Consultants who work as independent contractors can deduct the cost of their health insurance from their taxes.
Continuing education expenses such as classes, professional journals, and books related to the consultant's area of expertise may be deducted. Professional association fees are also deductible. For a complete and up-to-date list of deductions, it is advisable to consult a tax professional. As an independent consultant, you can save hundreds, or even thousands, of dollars at tax time by deducting business expenses. This is because every time you amortize an expense, you reduce your taxable income and put the money you spend on your business back into your pocket.
Your customers may hire you for your expertise, but as industries and processes evolve, so should you. Taking courses, attending conferences and reading books related to your professional development are all tax-deductible. However, at the same time, your education is less and less likely to pay for itself once you get a good job after graduation. As noted above, self-employed business owners can deduct the costs of their education, subject to certain limitations in the same way as individual taxpayers. Launching your consulting business right out of school can lead to significant tax breaks, as you'll be able to take advantage of education tax credits to reduce your tax liability.
If you choose to apply the standard mileage deduction, keep in mind that you cannot deduct individual vehicle expenses, such as gas, oil changes, auto repairs, and car insurance. Qualified education expenses you can deduct include tuition, mandatory fees, lab fees, student activity fees, book fees, and other expenses that your school requires for enrollment. However, if they have always worked for a company, people who become consultants may be surprised at how much they can deduct from their taxes. For all of these excluded benefits, including educational assistance, you do not have to withhold federal income tax or FICA tax for Social Security and Medicare (both the employee and the employer part). The Lifetime Learning Credit (LLC) encourages earning lifetime income by allowing you to deduct educational expenses for undergraduate and graduate courses, as well as the classes you take to improve your skills in your current career or to acquire new skills. CPAs, for example, are often required to attend regular educational and training programs to maintain their CPA designation. The same goes for health care; you can't deduct student health fees, medical expenses or health insurance costs as educational expenses.
If consultants need to travel to meet clients, research, attend classes related to their area of expertise or for other work-related reasons, they can deduct their travel expenses. Another way to provide employees with non-taxable educational benefits for the employee is to provide them with benefits for working conditions. Consultants traveling by car can deduct the current standard mileage rate which aims to cover fuel costs and wear and tear on the vehicle. Speaking of which, the IRS does not allow deductions for educational expenses that will help you meet the “minimum requirements” to offer services in a new field.