Key Takeaways
- As a consultant, you can claim the cost of capital investments over a period of several years (depreciation) or in one tax year only, using Section 179 expensing.
- You can also take advantage of Bonus Depreciation, which has been changed for qualified assets acquired and placed in service after September 27, 2017.
- You can claim operating expenses such as rent, utility bills, internet service, phone bills, office supplies, printing costs, website hosting, and domain registration.
- You can take advantage of education tax credits to lower your tax liability for graduate education or courses at a recognized educational institution.
Business Startup and Office Costs
Launching your consulting business likely required significant upfront investments, called capital investments.
You may purchase furniture, telecommunications equipment, computers, and other longer-term investments that will remain in use for at least one year.
- You can claim the cost of these expenses over a period of several years (a process called depreciation).
- You also have the option of claiming them in one tax year only, using Section 179 expensing, which allows you to claim the total upfront cost immediately up to a $1,220,000 limit for 2024, and up to $1,250,000 for 2025.
- An alternative to Section 179 expensing is Bonus Depreciation. Bonus depreciation has been changed for qualified assets acquired and placed in service after September 27, 2017. The old rules of 50% bonus depreciation still apply for qualified assets acquired before September 28, 2017. These assets had to be purchased new, not used. The new rules allow for 100% bonus "expensing" of assets that are new or used. The percentage of bonus depreciation phases down in 2023 to 80%, 2024 to 60%, 2025 to 40%, and 2026 to 20%. After 2026 there is no further bonus depreciation. This bonus "expensing" should not be confused with expensing under Code Section 179 which has entirely separate rules, see above. The 100% expensing is also available for certain productions (qualified film, television, and live staged performances) and certain fruit or nuts planted or grafted after September 27, 2017. 50% bonus first year depreciation can be elected over the bonus expensing for the first tax year ending after September 27, 2017.
You’ll also have a number of operating expenses—costs and bills you’ll need to pay regularly to run your business—that you can claim immediately. These may include:
- rent
- utility bills (electricity, heat, water)
- internet service, phone bills
- office supplies (like pens, paper)
- printing costs
- website hosting, domain registration
- software subscriptions: Google Drive, Google Apps, Adobe Creative Suite
Education, Research, and Certifications
Launching your consulting business fresh out of school can come with some serious tax breaks, since you'll be able to take advantage of education tax credits to lower your tax liability.
Continuing education has tax perks, too. Graduate education or courses at a recognized educational institution may mean you're eligible for the Lifetime Learning Credit, which could lower your tax bill by $2,000. You also can write off the cost of:
- seminars
- webinars
- conferences
- professional certifications
Don't forget to claim business and professional memberships as business expenses. Typical costs of education and research materials include:
- subscriptions to trade magazines
- business and consulting books
- research services, like Reuters Thomson
Any software or apps you use for productivity, such as Google Drive or Microsoft Office suite, also count as business expenses that can lower your tax liability.
TurboTax Tip:
You may qualify for other tax deductions, including banking fees, credit card processing fees, financial service fees, tax return and financial software, and costs for the business use of your vehicle.
Advertising and Client Service Costs
Marketing your business is essential to your success, and costs you incur can help you save money on your taxes. You can claim web hosting and domain registration costs, along with any other expenses incurred to set up your website, from the photographer for that perfect headshot to the software you used to design elements of the site.
Claim costs associated with networking such as:
- registration for attending industry conferences and events
- merchant fees for exhibiting at trade shows, and the cost of setting up your booth
- travel expenses
- dining expenses
- gifts used for your business
Other Tax Deductions to Consider
You're likely to encounter additional business costs you can claim on your taxes, such as:
- banking, credit card processing, and financial service fees
- tax return and financial software
- 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
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