Top Tax Deductions for Consultants (2024)

FAQs

What is the most overlooked tax deduction? ›

Medicare Premiums: You may be able to deduct unreimbursed medical and dental premiums, co-payments, deductibles, and other medical expenses to the extent that the costs exceed 7.5% of your adjusted gross income. This includes most Medicare premiums.

A portion of your housing costs (rent, utility bills) via home office deductions. Professional services (including lawyer's fees) Mileage, fuel and gas costs, vehicle lease or rental, tires, insurance and other travel expenses for the business use of your vehicle.

Car Deductions

The cost of all driving you do for your consulting business, with the important exception of commuting, is tax deductible. Nondeductible commuting occurs when you drive from your home to a place of business. So, driving from your home to meet with a client would be nondeductible commuting.

Many everyday expenses can be itemized as deductions on your income tax return. Categorize your expenses into IRS-approved deduction categories such as medical and dental expenses, deductible taxes, home mortgage points, etc. Bunch your expenses into one tax year to maximize the value of your deductions.

You must file Form 1040 or Form 1040-SR as a self-employed consultant. You must attach Schedule C on which you've figured out your net profit or loss after accounting for deductible business expenses. Be sure to consult a tax attorney about any additional forms that may apply to you.

Keep in mind, if the average consulting fees are around $100 per hour, your experience and track record will need to be taken into account. If you are a brand new consultant, you may be charging closer to $50 per hour. With 20 years of experience under your belt, you may be charging $150 or even $200 per hour.

Contractors and other self-employed workers can deduct home office expenses, advertising expenses, accounting fees, phone bills, equipment depreciation, travel and car expenses, healthcare and retirement contributions, and more from their taxable income.

If you're self-employed and you use your cellphone for business, you can claim the business use of your phone as a tax deduction. If 30% of your time on the phone is spent on business, you could legitimately deduct 30% of your phone bill.

Can I deduct health insurance premiums? ›

Health insurance premiums are deductible if you itemize your tax return. Whether you can deduct health insurance premiums from your tax return also depends on when and how you pay your premiums: If you pay for health insurance before taxes are taken out of your check, you can't deduct your health insurance premiums.

If you bought this vehicle using a car loan, you won't be able to write off your car payment. However, you can write off a portion of the interest on your car loan. That's right — your loan interest counts as a car-related business expense, just like gas and car repairs.

Additionally, with an economical vehicle, the standard mileage rate will likely offer a higher deduction amount — you'll be spending less on gas and maintenance than the “average vehicle,” yet taking advantage of an IRS deduction designed for the average vehicle.

Luckily, there is no limit on the amount of mileage you can claim on taxes, granted that all mileage is related to business purposes.

Generally, tax credits tend to be more valuable compared to deductions. That's because of the dollar-for-dollar reduction mentioned earlier. Here's a simplified example to make things easy. Let's say a credit and a deduction that are both valued at $1,000 and that your tax liability is $3,000.

Higher standard deduction

The standard deduction will also increase in 2024, rising to $29,200 for married couples filing jointly, up from $27,700 in 2023. Single filers may claim $14,600, an increase from $13,850.