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An Intro To Self-employed Consultant Tax Deductions
An Intro To Self-employed Consultant Tax Deductions
Want to start consulting but aren't sure if it’s the right path for you? Why not start freelancing? Working as a self-employed consultant can help you test the waters to see if this is something that you could see yourself doing full-time.
There are hundreds of consultant tax deductions that can lower your taxable income and make tax season a little less daunting. You can use a consultant tax deduction calculator to find relevant tax write-offs that you can claim.
All ordinary and necessary expenses incurred for your business can be tax-deductible, according to the IRS. When filing your taxes, the IRS will need to see a record of these expenses, so it is important to track them throughout the year and have everything you need to file by the tax deadline.
Key takeaways:
- Business expenses that are ordinary and necessary can be used as tax deductions for consultants
- The IRS requires a record of these expenses in order to deduct them
Table of contents
Filing taxes as consultants: how does it work?
If you are a consultant working as a freelancer or independent contractor, you are essentially operating as a sole proprietor and are considered to be “self-employed.” This means you pay self-employment tax on any income you earn over $400.
You’ll receive a 1099-NEC from every entity you work for by the end of January showing your earned income. You will use this information to fill out Schedule C where you will report your net profit or loss for the year and file it alongside the standard Form 1040.
You can use a self-employment income tax calculator to get a full breakdown of how much tax you’ll have to pay. If you owe over $1,000 in tax, you’ll have to make this payment every quarter.
A quarterly tax calculator can be incredibly useful to estimate your tax obligations throughout the year. This way you can ensure that you have enough money set aside to cover your tax payments and avoid any unpleasant surprises during tax season.
Are self-employed consultants “pass-through” businesses?
Most self-employed consultants operate as sole proprietorships, which means they are considered to be a “pass-through business.” This just means that any profit earned through their business is taxed on their individual tax returns at their personal tax rates.
When you're freelance consulting, filing your taxes can be a lot to wrap your head around, especially if you’re just starting out. You have to keep track of all your expenses accurately and meticulously if you want to claim them as tax deductions.
FlyFin simplifies the process by linking your expenses to let A.I. find every possible deduction that you can write off, saving you time and money. CPAs specializing in 1099 taxes are available 24/7 in the app to answer any question you may have about 1099 taxes, as well as prepare and file your tax returns for you.
The Tax Cuts and Jobs Act of 2017 created a new deduction that allows pass-through business owners, including those who are consultants, to deduct 20% of their net income from their business, known as a Qualified Business Income Deduction (QBID).
For example, if you earn $60,000 in income in 2024, you can deduct $12,000 from it and lower your taxable income to $48,000. But this deduction comes with a lot of rules. For one, your business has to operate in the US.
Your income cannot exceed a certain threshold that is based on your filing status. For 2024, it is under $191,950 for single filers and under $383,900 for married filing jointly. You also cannot deduct any kind of investing interest income (even from property). But if your business rents out property as a real estate service, that income qualifies for the deduction.
You will use Form 8995 to calculate your deduction and report it on Schedule C. You can claim this deduction regardless of whether you take the standard or itemized deduction, as this deduction only affects your self-employment income.
Tax deductions for consultants: what can I write off?
There are many tax deductions that self-employed consultants can use to lower their taxable income. Using a 1099 tax calculator can help you find specific write-offs relevant to your industry.
As a self-employed consultant, it is important to understand the tax deductions available to you to maximize your earnings and ensure compliance with relevant tax laws and regulations. While being your own boss can be great in terms of flexibility, managing your taxes on your own can be stressful.
However, with careful planning and attention to detail, you can take advantage of a range of tax deductions to reduce your tax liability and keep more of your hard-earned money. One of the most important steps to optimizing your tax deductions as a self-employed consultant is to keep accurate records of all business-related expenses. If it all gets too complicated, you can find the tax app that's right for you or consult a tax professional for advice.
What’s FlyFin?
FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. It offers a host of cutting-edge tax tools that help you quickly find deductions. You can also use tools like a home office deduction calculator.
FlyFin uses an A.I. to track all your business expenses automatically and find every possible tax deduction.
Once you have all your possible deductions in one place, our CPA team files a guaranteed 100% accurate tax return for you. It saves you a couple of thousand dollars and a ton of time on your taxes.
Download the app and have your taxes filed in minutes, saving time and more money on your taxes than last year, guaranteed.
Expert tax CPAs ensure 100%-accurate tax filing
A.I. finds every tax deduction, eliminating 95% of your work
On average users save $3,700
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