Question 1

What expenses can independent consultants deduct?

Accepted Answer

Common deductions include: home office, business travel, professional liability insurance, marketing and advertising, professional memberships, continuing education, client entertainment (50% for meals), computer and software, and phone/internet (business portion).

Question 2

Should consultants form an LLC?

Accepted Answer

An LLC provides liability protection and is recommended for most consultants. A single-member LLC is taxed the same as a sole proprietor (no tax difference), but it protects your personal assets. You can also elect S-Corp taxation through an LLC if it makes sense financially.

Question 3

How do consultants handle clients in multiple states?

Accepted Answer

You may owe taxes in states where you have 'nexus' (significant presence). If you work remotely from one state for clients in another, you generally pay tax only in your home state. However, if you travel to client sites, you may owe tax in those states too. Rules vary by state.

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