Properly managing business expenses is not just good business, it’s also good income strategy for an independent consultant. As a business-of-one, you will likely incur fixed costs that can’t be billed back to a client. You may also need to take care of expenses such as health care and retirement.
Each of these fixed or variable costs can be a drain on your income. However, with proper expense management, you can write off a number of these costs come tax time and put money back into your pocket. Here are ten tax deductions to consider for your independent business.
One of the best tax advantages for the self-employed are retirement plans. Tax deductible qualified plans include:
Deduct phone, Internet, and fax expenses directly related to your business. For example, if your cellphone is for both business and personal use, you are only eligible to deduct the percentage of your bill that relates to business usage.
Anything you do to enhance your job-related skills or round out knowledge related to your business can be deducted. This may include an online class, certification course, seminar, books, or subscriptions to professional publications. Be sure to save receipts of all purchases, including e-receipts.
You may be eligible to deduct medical, dental, and long-term care premiums for your self, your spouse, and your dependents. However, if you are eligible to enroll in your spouse’s employer plan—even if you choose not to—you cannot take this deduction.
If you pay to create an ad for your business, buy business cards or stationary as marketing collateral, or use a PR firm to promote your business, these costs can be deducted.
If you take a business associate or potential client out to eat with the intent to further your mutual business goals, you can deduct up to 50% of this cost. The meal should not be overly extravagant, and be sure to either keep your receipt or record the time, place, and business purpose of your meal.
If you regularly and exclusively use a workspace in your home for your business, you are eligible for either a self-calculated deduction, or a simplified deduction—$5 for every square foot of qualified space.
Association fees, business development costs, or professional fees such as a tax preparation fee from your accountant are deductible so long as they are directly related to the operation of your business.
If you use your car to travel for business, you can deduct a dollar value of business miles traveled. Be sure to keep a record of the date, mileage, and purpose for each trip. Similar to the home office deduction, you can use a standard mileage rate, or calculate your actual expenses.
If business is the specific purpose of your trip, and you actively engage in a business activity such as a client meeting while on the trip, travel is another deduction you can add to your list.
As a best practice, be sure to maintain records and receipts of all expenses you plan to deduct. Continually ask yourself: is this a legitimate business expense? If you’re unsure, don’t try and write it off.
Tax deductions can get complicated quickly. At MBO Partners, our business managers can help properly track and account for these expenses, and enable you to see income benefit at each paycheck, rather than at the end of the year. For more information on self-employed tax deductions, contact us today.
MBO Partners content should not be construed as legal or tax guidance. Please consult an accountant or lawyer before making business or financial decisions.
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