If you’re a business consultant, chances are you have a lot of skills: branding, networking, solving problems, and critical thinking.
One skill that can’t be overlooked, however, is your accounting. Or, at least, as a business consultant, you need to track your income and expenses for tax purposes.
In doing so, here are the top 10 tax deductions you need to track.
1. Travel, Mileage, and Vehicle Expense
Perhaps your clients are local, or maybe they’re all across the map. Either way, odds are that you have to travel from time to time. Regardless of whether you’re traveling by car or by plane, most of your travel can be deducted. On top of that, if you travel to (or virtually attend) a conference, that’s a deductible cost, too.
For a major trip, the costs are easy to chart: your plane ticket, your hotel, and even what you pay for a rental car.
If you drive your own car, typically the best practice is to use the standard mileage rate, in addition to any extra actual expenses. Keep in mind that the standard mileage rate changes annually, but it is $0.56/mile in 2021. When you do this, be sure to log all your trips: the purpose for the trip and the miles driven.
2. Operating Expenses
Assuming you don’t have an office, a portion of your home will also count as a deduction for your consulting business.
These are known as operating expenses, and they function for your home office just like any overhead in a big corporate office. Anything you pay to help run your business will count, or at least a portion of it based on what percentage of the square footage of your home that is dedicated to your office.
Here are a few operating expenses to consider:
You don’t need the phone or internet service exclusively for your business. If you use it to power your business, deduct it! But be sure to keep a good record of all the bills.
If you ever host a business meeting or you’re buying a potential client a meal, these expenses need to be recorded, too. The same can also be said for live entertainment – just keep it within reason.
4. Legal and Other Professional Services
If you hire an attorney, accountant, or other type of professional, the fees you pay can also be deducted.
5. Business Insurance
There are several different kinds of business insurance, from professional liability coverage to “errors and omission insurance,” which is used if the policy owner is sued for negligence. Both are valid tax deductions.
6. Supplies and Technology
Your wifi and phone bill are not the only technology expenses to use as deductions. Desktops, laptops, printers, software, and any other electronic device you use for your consulting work should always be included.
Non-technological supplies also count, too. From signs to swag to business cards, anything printed for advertising your business is a deduction.
7. Website Expenses
If you’re trying to earn recognition as a top consultant, a great website is a must. Not only does it give your business more credibility, but it also helps directly link your company to your clients. That said, building a website can be pricey. Between design, hosting, maintenance, custom inboxes, and annual domain renewal fees, the costs can quickly pile up. That’s what you need to maintain detailed records of all of these expenses.
8. Advertising and Outreach
To help draw potential clients to your website and build brand awareness, there are a variety of different marketing and advertising approaches. Google ads, social media marketing, or creating high-quality blog content are all great approaches. Here’s something else they have in common: all the expenses incurred are tax deductions for your consulting business.
9. Business Gifts
If your consulting company has multiple employees, chances are you might want to do something nice for the people who are helping make your business a success If that’s the case, gifts you purchase for your employees – and even clients – are legitimate business expenses. That said, the limit is $25 per person each year on gifts for individuals, so anything beyond that will not be deductible. That said, if you’re giving a gift to the office as a whole, there’s no limit. Those types of company-wide gifts - such as a TV or new printer - are deductible in any amount, but often can be considered supplies.
Any subscription service that you use for consulting work is also something to include. This accounts for online magazines, print literature, video, or anything else that comes in helpful. Netflix? Probably not.
Keeping Detailed Records of Your Expenses: The Key to Big Deductions
Knowing all your business expenses is only the first half of the battle. The real test lies in maintaining detailed records for all of them. While you’re often going to be busy helping other people grow their businesses, don’t forget to look after your own. Keeping a record of all your expenses will help you maximize your deductions.