The number of IT consultants working as Independent Contractors is on the rise, and with that increase comes a lot of questions about business entities, tax deductible expenses, and how to maximize tax savings. Working as an independent contractor has many benefits, like the potential for higher hourly rates compared to their employee counterparts and more overall control of your financial future.
We work with a great number of IT consultants all across the nation, advising them at length about all things tax related. One common question is what tax deductible expenses are IT consultants able to take advantage of, so we compiled a list of common, and not so common deductions.
Things like air fare, rental cars, taxi fare, food, and lodging are all deductible as long as primary purpose of your trip is business.
2. Vehicle
If you drive to meet with clients, or go to their places of business, then you can take advantage of the vehicle deduction. One way to take the deduction is to track your miles and multiply that by the mileage rate set by the IRS ($57.5 cents per mile for 2015)
For more information on how to take advantage of your vehicle deduction, click here.
3. Equipment
Normally you would take depreciation on equipment purchased for your business, however, it is stated in article 179 of the tax code that you can deduct 100% of assets up to $25,000 that you would normally have to depreciate. So expenses like computers, copiers, fax machines, printers etc. are fully deductible.
4. Software
Expensive software is another deduction covered in article 179. Any software you may need to operate your business or complete projects are completely tax deductible up to $25,000 total deductions of depreciable assets.
5. Cellphone
If you use your cell phone for business calls, it is deductible. If you purchase a phone and plan separately for the sole purpose of business, then the cellphone and plan are deductible.
6. Home office
As long as you use the area of your home office exclusively for business, and use it regularly, you should be taking this deduction. However, if your home office is just a table in your living room, we’d discourage claiming the home office. Almost all IT consultants are able to take advantage of the home office deduction, because the nature of their work does require a lot of work off-site.
The most beneficial way to take this deduction is to measure the area of your home office and divide that by the square footage of your home. This will be the tax deductible percentage of your home expenses. Those expenses include:
Rent
Internet
Home owners or renters insurance
Utilities (gas, electricity, water)
Maid service
HOA fee
Home security
Repairs to your home
Depreciation on your home
In addition to the expenses you are able to deduct a portion of, there are home office expenses that are 100% deductible including:
Land line
The first land line you have for your home is not deductible, but if you have a second land line used specifically for business purposes, the second line is deductible.
Fax line
If you have a phone line used specifically for your fax machine, that phone line is also deductible.
Repairs and improvements
Expenses related to repairing, improving, or adding to your home office are fully deductible.
If you are a video game developer, you can write off the purchase of video games for the purpose of market research. Name any other occupation that allows you to do that!
Landscaping
Life insurance
It should be noted that the deductions listed are tailored to IT consultants that work as independent contractors, and their business expenses. This is not a conclusive list of possible tax deductions.
For more information on what makes an expense tax deductible, click here.
At Independent Contractor Tax Advisors, we are plugged into the tax world. We stay up to date on the ever changing tax laws, working hard to keep our clients informed on everything relevant to their business. Contact us today for a free tax consultation and see how we can save you taxes!
CLICK HERE FOR A FREE TAX CONSULTATION
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