Working as an Independent Consultant? 3 Tax Tips

Being an independent consultant has become more popular. As an independent consultant, you work for a company but are not directly employed by them. Generally, you sell products to customers through personal connections and in-person events. You may also earn commissions on the sales of consultants that you recruit.

As an independent consultant, you are considered a direct seller for tax filing purposes. There are certain tips and rules you need to keep in mind when it comes to filing your taxes.

Tax Tip #1: Pay Self-Employment Taxes

As an independent consultant, you are considered a self-employed individual. That means that you will have to pay the self-employment tax rate of 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. You are going to have to pay self-employment tax in addition to income tax.

The self-employment tax is something you have to pay throughout the year, with quarterly estimated taxes, when you are self-employed.

Tax Tip #2: Keep Track of Deductible Expenses

Second, you will want to keep track of business expenses that you can deduct and use to lower your taxable income. Reducing your taxable income can help to reduce both your self-employment tax and income tax, saving you money on your tax bill, which is why you need to keep track of your deductible expense.

As a direct seller, you can deduct your home office. You can directly track your expenses or use the simplified home office deduction. You can also deduct business miles and vehicle expenses for all the driving you to do business events and product delivery. As a direct seller, you can also deduct your startup costs, such as starter kits or training fees, which are common in this industry. You can also deduct any sample inventory that you use for demonstration purposes.

If you spend money on advertising and marketing, such as running a website, creating Pinterest pins, or making business cards, those are all deductible expenses. You will want to keep track of all your deductible expenses, as they can help with your tax bill.

Tax Tip #3: Keep Track of All Business Income

Third, it is essential to keep track of all of your business expenses. As an independent consultant, you are going to be making money from various sources. For example, you are going to make income from the sales to your customers. You may also earn a commission when someone you sponsored or recruited made a sale. Any products, gifts, or prizes that you earn for meeting sales goals are also considered a form of income.

You need to track and report all of the income you earn, regardless of whether it is cash income or in the form of gifts or prizes. 

If you need assistance with your taxes, you will want to work with a tax consulting business. They can help you make smart tax decisions all year long and help you with filing your taxes each year.