Whether you work as a project manager for a single firm or find work on a freelance basis, you need to plan your taxes carefully. Project managers can face a number of expenses related to their profession, and some of those expenses can be used as a hedge against taxes.
As with all tax planning, it is helpful to get the advice and guidance of an accountant or CPA, but there are some general categories you can use to look for deductions. Making the most of the deductions to which you are entitled can lower your overall tax bill and help you keep more of the money you earn.
Professional Association Fees
If you work for a single company, that firm may require you to maintain memberships in certain professional organizations, such as the Project Management Institute. If your employer does not pay for the training materials, certification tests and membership dues, you may be able to write off these items as business expenses. Many states also allow employees to take a deduction for unreimbursed business expenses, so you could get both a state and a federal tax deduction.
You can also take a deduction for those association fees and training costs if you work for yourself. You can take the deduction when you complete Schedule C, which details how much money you made from your freelance activities, and lists the expenses and deductions associated with your business.
Many times project managers are required to hold certain licenses, especially if they work in sensitive areas like defense, medical research, or health care. If your employer does not pay your license fees, you may be able to take a deduction on your state and federal taxes. You can also take that deduction if you work on your own, and your clients require you to hold and maintain certain licenses.
Project managers often travel to distant offices to meet with clients and gather information needed to do their jobs. If you work for a traditional employer, that company may reimburse you for expenses associated with that travel. If the company does not provide that reimbursement, you can take a deduction when you file your taxes.
The mileage reimbursement amount is set each year by the IRS, and it varies along with the cost of gas and other common automotive and travel expenses. You can find information about the current mileage reimbursement rate by visiting the IRS website.
If you work as a freelance project manager, you can take a tax deduction for the money you spend on health insurance, provided you are not eligible for membership in a group plan from an employer or spouse.
You can also get a further tax deduction by opening a health savings account and using it to pay routine healthcare expenses. You can open a health savings account if the health insurance you have is considered a high deductible plan. Your human resources department or insurance agent can let you know if your plan qualifies.
If you work for an outside employer, participating in the firm’s 401(k) can save you significant money on your taxes. When you invest in a 401(k), every dollar you put in is deducted from your taxable income, and the savings can be substantial.
If you work as a freelance project manager, you can open your own retirement plan, including an individual 401(k) with the same benefits as the corporate version. You can also look into other retirement plans for the self-employed, including SEP-IRA plans and Keogh plans.
Saving money on taxes is never easy, but it is possible to reduce your tax bill and keep more of what you make. The key is to plan ahead and look for every possible deduction you can. Project managers have a number of ways to keep their taxes low, and it pays to start saving now.
Note: All of the information written in this article are suggestions and subject to change. Please consult your tax advisor.
About the Author: Bob Wolff is an accountant-turned-Channel Manager at BQE who helps to offer consulting and software solutions for BQE customers. He likes to share his business expertise here on the blog whenever he can.