9 Tax Deductions for Consultants

Familiarity with the top consultant tax deductions can lead to substantial tax savings for your small business. From home office expenses to business travel, there are strategic ways to reduce your taxable income and maximize your profits.

The freelance life offers a treasure trove of potential tax deductions for consultants like you. The following are a few key tax deductions to know.

1. Qualified Business Income (QBI) Deduction

Pass-through business owners including consultants can deduct up to 20% of their net income using the QBI deduction. Pass-through companies include LLCs, sole proprietorships, and S corporations.

How much you can claim will depend on the net total of your income including deductions, gains, and losses. Claiming the full 20% QBI deduction is only possible if your taxable income from all sources doesn't exceed $191,950 for single filers and $383,900 for joint filers in 2024.

2. Car Deductions

Some costs associated with business use of a vehicle are tax deductible. Commuting to and from an office isn't included in this. However, if you work from a home office and travel for a meeting or other business purposes, this would be a deductible business trip.

Choose one of these methods to account for your car expenses:

• The actual expense method: Keep a record of all eligible car-related expenses (gas, repairs, oil, etc.) manually.

• The standard mileage rate: This only requires you to track how many miles you drive for business, not how much you spend every day. If you choose this method, be aware that you can't deduct individual expenses like car insurance, gas, or repairs.

There are some limits surrounding the tax mileage deduction. However, as a small business owner, you can benefit from many deductions that reduce your taxable business income, especially if your work requires you to move from location to location.

Car Depreciation

Cars purchased and used for business purposes will generally be depreciated using the Modified Accelerated Cost Recovery System (MACRS). Familiarize yourself with the limits and rules, laid out in Publication 463.

3. Office Expenses

Office expenses like rent and the utilities you use in your office are typically tax-deductible. This is also true if you have a home office. This could be especially valuable for consultants who rent their homes as it enables you to deduct a portion of your monthly rent. For many new consultants, this can result in valuable savings.

Home Office Deduction

There are two ways to calculate the home office deduction:

• Simplified option: Multiply your office’s square footage (with a limit of 300 sq. feet) by the standard rate ($5). Please note that there’s a $1,500 limit when using the simplified method.

• Actual expense method: The sum of all your home-office expenses. These include mortgage interest, rent, depreciation, utilities, maintenance, and repairs to your home office.

Telephone Expenses

Regular telephone expenses made on your personal landline or cell phone can't be deducted. However, you can deduct 100% of the costs of a second business phone. If this second phone is used for business and personal calls, you will need to document its business use.

4. Business Travel

Some business expenses connected with work travel may be deductible. Eligible business travel expenses include airfares, other transportation costs, and lodging expenses while you're out of town.

Please note: Only 50% of meal expenses can be deducted while on a business trip.

5. Business Gifts

Business gifts are subject to various regulations. If you wish to give tax-free employee gifts, familiarize yourself with the caveats that stipulate what's taxable. For example, giving cash or cash-equivalent gifts could have tax implications both for the employer and the employee.

Generally speaking, gifts for clients are deductible as a business expense up to a limit of $25 per person per year.

6. Depreciation on Long-Term Property

As a consultant, you'll likely require various items of tangible personal property to run your business. Small business owners have more than one option when depreciating property like computers or furniture.

Ask tax planning experts how best to depreciate property purchased for your consulting business. Regular depreciation, bonus depreciation, or Section 179 expensing may be more or less advantageous; ask a professional to help you optimize your tax return.

7. Office Supplies

Office supplies can add up more quickly than you think. Common office costs like paper or postage stamps are tax-deductible. 

8. Legal and Professional Services

Fees you pay to professionals like attorneys, other consultants, or accountants are deductible if the fees are business-related.

9. Insurance

Business insurance deductions are subject to different regulations depending on the type of insurance you have. Insurance you take out for business purposes, like business liability insurance or insurance on your business property, is deductible. Self-employed consultants may also be able to deduct 100% of their health insurance premiums from their income tax.

Make Tax Season Less Taxing with Deductions

Reaping the benefits of deductible business expenses is a question of knowing how to claim what you deserve. Reducing your tax bill for your consulting business gives you leeway to invest more into your business.

Wading through IRS regulations yourself isn't an optimal use of time for most business owners. Working with a tax professional allows you to focus on growing your business while you benefit from the tax breaks your business deserves.