Tax Deductions for Financial Consultants

February 20, 2019

As a financial consultant, you operate like most other small business owners. So, you can take most of the same tax deductions as any business does. There a number of other tax deductions, though, that are specific to financial consultants. Here’s a look at both the standard and specialized tax deductions financial consultants are eligible to take.

  1. Business Operation Costs

Like any other small business, you can deduct any costs you incur in operating your business to arrive at your adjusted gross income for tax purposes. You can deduct any number of expenditures, such as:

  • Rent
  • Office supplies and postage
  • Computers and peripherals
  • Furniture and furnishings
  • Business phone/internet access
  • Interest on bank loans
  • Other professional services
  • Client acquisition expenses
  • Professional subscriptions

These operational costs – and many more like them – are fully deductible on your return.

  1. Vehicle Deduction

If you use a vehicle for business purposes, you can deduct related expenses. The vehicle deduction is based on either miles driven or actual expenses. The standard mileage rate for the 2018 tax year is 54.5 cents per mile, a number that the IRS sets each year. If you use the actual expenses deduction option, you can include gas, vehicle maintenance, and insurance.

  1. Home Office Deduction

If you operate your financial consulting business out of your home, you may be eligible for the home office deduction. For self-employed professionals with home-based businesses, deductible expenses include:

  • Mortgage interest
  • Insurance
  • Utilities
  • Repairs and maintenance
  • Real estate taxes
  • Home depreciation
  • Security system

Many of these deductions are prorated based on the square footage of your office space in relationship to your entire home. Alternatively, you can use a flat-rate deduction of $5 per square foot of home office space for up to 300 square feet, resulting in a maximum write-off of $1,500 per year.

  1. Meals and Entertainment Deductions

The Tax Cuts and Jobs Act on 2017 eliminated deductions for entertainment expenses. So, you can no longer treat your clients with tickets to a football game or Broadway play. On the other hand, you can still deduct 50% of meals you have with a current or potential client, as long as it’s directly related to your business. The IRS is still working to define its guidance on this deduction.

  1. Medical Expenses

If you have a self-insured medical reimbursement plan, you may be able to deduct up to 100% of the out-of-pocket medical expenses you incur. Additionally, medical costs for the spouses and dependents of business owners are also generally deductible.

  1. Retirement Plans

Contributions to retirement plans – such as a SIMPLE IRA, a self-employed 401(k), or a SEP-IRA – may be deducted, up to certain limits. For more about retirement plans for small business owners, click here.

  1. Specialized Deductions

In addition to the usual deductions business owners can take, there are a number of deductions specific to financial consultants:

  • Financial planning software – If you use software to analyze securities and portfolios or to perform other financial planning processes, you can deduct this from your taxes
  • Trading platforms – If you use a trading platform in order to bypass broker or dealers so that you can get your clients better market pricing on securities, you can deduct this cost – typically a monthly fee – from your income
  • Broker/dealer costs – If you do use a broken or dealer, you may be charged maintenance or administrative fees, all of which are deductible
  • Education and certification expenses – If you require professional certifications – such as to obtain or maintain your status as a Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), or Chartered Life Underwriter (CLU) – the educational and certification costs you incur are deductible
  1. The 20% Deduction on Qualified Business Income

The Tax Cuts and Jobs Act also instituted a 20% deduction for small business owners who report their income on their personal tax forms (called “pass-through income”). The deduction is subject to some limitations and is set to expire in 2025, but for now it allows you to reduce your adjusted gross income, saving you substantial tax dollars.

When in doubt about what deductions you can take, consult a tax accountant. A qualified accountant can make sure you claim the deductions you’re entitled to.

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