Whether you go by the title of marketing consultant or public relations consultant, you understand the importance of controlling costs, which is why you should understand the available deductions for independent contractors in your niche. Granted, not every item sitting on your desk is going to be deductible, but most of the services, equipment and even meals that are necessary for you to do your job are at least partially claimable.
Tax time can be frustrating and confusing for a lot of people, especially when you work for yourself. It is easy to become overwhelmed by the volumes of tax codes and paranoid about potential audits, but the reality is that your fears may be costing you more money than necessary. This year be prepared when you file and be sure to claim all available deductions.
1) Home Office Deductions
Many successful marketing consultants have a home office, but not all of them claim their office or expenses. If you work from home in a qualified office, then you can claim things like furniture, and even a percentage of your annual rent or mortgage. Sole proprietors may even be eligible for home insurance and real estate tax deductions. Beyond this, you can also report a portion of your utilities and maintenance costs for office upkeep. However, the IRS relies on the Exclusive Use requirement, which specifies that spaces you deduct from your income have to be used exclusively for business. Of course, this doesn’t mean you have to leave your home office every time you need to take a personal call – but it can’t be the place you read the morning paper every day.
While these tax write-offs alone will help, it is important to note that these deductions are based on square footage, meaning that you need to divide the office square footage by the total home square footage to arrive at a percentage. For example, if you have a 100 sq. ft. office in a 1,200 sq. ft. house, the maximum amount you can claim for any deduction is about 8 percent.
2) Operating Expenses
Operating expenses include a wide array of costs, but these are some of the most common:
- Business insurance premiums
- Independent contractor fees
- Legal fees
- Association dues
- Retirement contributions
- License fees
When you think back over your business costs, you may forget about the web developer you pay to keep your website up to date, but that’s as important to your business as keeping the lights on. Things like insurance premiums and advertising that you can’t operate a business without can make up the largest percentage of your deductible expenses, so it’s important to keep a detailed record of the money you’ve spent to keep your business up and running.
3) Road Time and Entertainment
You can’t build a marketing consultant business without developing relationships, and those relationships take work. It takes time (and money) to build strong enough relationships for clients to trust you as their guide. Fortunately, most of those expenses are deductible. From travel to business luncheons and even gifts, the IRS knows and understands that road time and entertainment is all part of your job.
Whether you are interviewing prospective employees or clients, attending conferences, or developing partnerships and other elements for your business, travel is a part of the gig. If you pay for a round trip ticket and then need to stay overnight in a hotel, you can claim the entire trip on your schedule C.
Additionally, meetings over meals may be deductible. It is common practice to have lunch and dinner meetings, and while the entire meal may not count, you can typically claim about 50 percent of the bill. You can also claim gifts, though there is a $25 cap on the gift value per client. However, you may find greater deductions through charitable donations – if the client is a charity, check with your accountant to see what you can deduct. Because tax preparation is a part of business, you can deduct their fee as well!
4) Software and Equipment
Don’t forget that you can also claim any software, service or equipment you use as a marketing consultant. Software and equipment deductions are not merely limited to your computer. You can also claim internet, management and other services. You can claim books and other educational tools as well. Essentially, this includes anything that is necessary for your business to run, including your desk and other furniture, cellphone, printer ink, and various other items. However, as with other deductions, you must only use these things for business purposes. Therefore, you should keep track of everything, from the number of pages you print to the number of hours you work. Apps like Everlance can help sort your purchases right when you make them, so you’re not drowning in shoeboxes of receipts come tax time.
5) Debt, Collections and Payroll
As a marketing consultant and an independent contractor, you likely need to deal with debt, collections and possibly even payroll. All of these are potential write-offs. The rule of thumb when it comes to debt is that you can only claim that it’s bad debt if you have attempted to resolve the matter first. This likely requires a third-party contractor, which is deductible. If the contractor fails to collect the debt, you can claim it as bad debt.
You can also claim payroll, or at least payroll taxes. If your business expands to the point of needing employees, then you will also need to pay payroll taxes, both federal and state. While that can be discouraging, you can claim the expense on your schedule C.
While being self-employed can provide significant opportunities for both financial reward
and personal growth, it can be a tough role. You are responsible for every aspect of your business and failing often comes with significant financial loss. However, because our current tax laws heavily support working independently, knowing your deductions can make contracting much more profitable than working as an employee.
As an independent marketing consultant, you know how important it is to minimize expenses without losing quality. Bunker understands this as well, which is why we work hard to provide you with affordable insurance without sacrificing the protection you need. Contact us today and see what we can do for you.
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