Tax Deductions For Therapists
Guest Blog Post by Sarita Gulati | Updated march 5, 2024
As a private practice therapist, the thought of tax season can stir up a lot of feelings. It may feel like your finances are looming over your head. You're technically a small business owner––shouldn't you have a good grasp of handling your taxes? Will you manage to file them accurately this year? How will you find the time when you have a full caseload of clients? And, maybe the most stressful question of all: how much will you owe the IRS?
Discomfort and guilt around finances are completely natural, especially when money matters aren't covered in your grad program. Just like with any other facet of life, financial growth is a learning process. One of the first steps to being financially savvy as a mental health therapist is to understand tax deductions.
Maybe anything with the word tax in it makes your eyes glaze over. Completely understandable––but deductions should be the opposite of scary. Getting a solid understanding of tax deductions and maximizing them can help your business and save you hundreds or thousands of dollars!
What Are Tax Deductions for Therapists?
When you take a deduction on your tax return, you are “writing off” costs that you have already paid towards your business. You subtract these costs from your income for the year and are taxed on the remainder. Tax deductions lower the amount of income you are taxed on, therefore lowering the amount of money you’ll owe at year-end. There are a variety of common business expenses that you can take deductions for in order to save at the end of the year.
A tax deduction does not mean something is free. Essentially, you're telling the IRS, "I made x amount this year, but already spent y amount on the upkeep on my business." Subtract y from x, and you pay income tax on what's left.
You'll see the words "write-off," "tax deduction," and "deductible" used interchangeably in this blog.
Common Therapist Tax Deductions
When running your own therapy business, it's important to learn which of your expenses are tax-deductible so you can save money when it's time to pay taxes. Keeping your business and personal bank accounts separately also contributes to this.
Here are some common therapist tax deductions to be aware of as you embark as your journey as a therapist, small business or private practice owner.
Advertising, marketing, and promotions. How do you market yourself as a therapist? The dollars you put into promoting yourself are deductible. This can include anything tangible, like business cards or brochures, to joining an online directory (like Inclusive Therapists or Mental Health Match, use code CXN1628M9Z to get 6 months free!), posting online advertisements, using embedded quizzes for lead generation (like Interact) or email marketing services (LIndsay says, “I like FloDesk! Use this link for 50% off the subscription cost”).
Association and membership fees. If you belong to any professional organizations such as the APA or NASW, these expenses can be deductible.
Bank charges and fees. It's important to keep your business accounts separate from your personal ones. If you do, you can deduct all those pesky bank and credit card charges, including annual fees, service charges, transfer fees, and overdraft fees. Charges like interest, checking account fees and credit card processing fees can be written off.
Business meals. Any meal purchased related to your business, such as a lunch meeting with a client or consultant, can be eligible for tax deduction.
Business registration and license fees. This is particularly important if you're new to private practice this year; you'll be able to write off a lot of the startup business costs. Any licensure is deductible as well, although only eligible for a tax deduction as a renewal.
Continuing Education. Therapists are constantly learning! Many people choose to continue their education by attending courses, workshops, and conferences to further improve their therapeutic skills (CEUs). Some additional examples include subscriptions to trade or professional publications, books tailored to your industry, and transportation expenses to and from any classes.
Business Continued Education What many therapists in private practice don’t know is that continuing your education related to running your business are costs that can be written off. As long as these endeavors apply to your practice, the costs can be written off. Feel free to reach out to us if you're unsure whether an expense may apply.
Depreciation expenses. This write-off can be difficult to understand, but it entails any larger purchases over $2,500. (For therapists, a common write-off in this is electronics or office furniture.) You can choose to deduct these purchases from your taxes in the first year after purchase, or in small increments, over the years the item is used.
Home office expenses and supplies. This is especially important during the COVID-19 pandemic, as we've all spent who knows how much on home desk set-ups and supplies we may have already had in the office. These can include pens, scissors, staplers, printer ink, postage, small furniture pieces, and cleaning supplies. Further, there are two general approaches to deducting home office expenses:
Simplified method: You can deduct $5 per square foot of your home used for business, up to 300 square feet.
Standard Method: Track all actual expenses like the ones above including expenses for maintaining your home, mortgage interest or rent, utilities, real estate taxes, housekeeping and landscaping service, HOA. You then multiple these expenses by the percentage of your home used for business.
Note: There are two specific qualifiers for these deductions. You must be using the home office for regular and exclusive use, meaning you must be using it for strictly business activity. Your space should have clear boundaries. It must be your principal place of business, meaning that you do most of your business there.
Insurance. Liability and malpractice insurance counts as a write-off. This can be costly, which means it can save you a good amount on income tax if you deduct it.
Health Insurance. Health insurance is where the “insurance” deduction bucket can get a bit tricky. Health insurance premiums for you, your spouse, and dependents (if applicable) can be deductible. However, the deduction you may take is limited to your business’ earned income. This means if your business reflects a loss, health insurance premiums are unfortunately non-deductible.
Legal and professional fees. Legal and professional fees that are incurred in regular operations of your practice are fully deductible. This includes payments for accountants, bookkeepers, tax preparers, lawyers, and more. You can only deduct the fees as they relate to your business. Think: hiring a lawyer to help you draft your practice policy and paperwork.
Licensure Fees. This is particularly important if you’re new to private practice this year; you’ll be able to write off a lot of the startup business costs. Any licensure is deductible as well, although only eligible for tax deduction as a renewal.
Office rent and utilities. If you run your private practice from an office, your rent and utilities (such as a phone or electric bill) can often be written off. If you're working out of your home or sharing utilities for business and personal use, this can get tricky -- you'll only be able to deduct for your percentage of business usage.
Personal psychotherapy. Are you seeing your own therapist? Money spent on personal sessions can also be deducted on your tax return. If you’re currently seeing your own therapist, we take the stance that this can count as a tax write-off. Working with another mental health professional can aid in professional development and give you additional insight into your work as a therapist, which ultimately improves your business in the long run.
Software services. Any practice management software (side note from Lindsay: I love and use Simple Practice, get a $100 credit when you use this link), along with business software such as Google Drive, is eligible for deduction.
Supplies. As we enter our third year of the pandemic, we are all well acquainted with telehealth and likely have an abundance of office expenses each year. Supplies that you may choose to write off can include pens, scissors, staplers, printer ink, postage, small furniture pieces, and cleaning supplies.
Taxes. You can deduct various taxes related to your business, including state income taxes, payroll taxes, personal property taxes, real estate taxes paid on business property, sales tax, excise taxes, and fuel taxes.
Travel expenses. Travel expenses can be deducted if the trip or event was for business purposes. It’s important to keep receipts and documentation to support these expenses. This can include expenses such as airfare, car and train expenses, hotel fees, or travel meals. In order for these expenses to be a true business expense (and therefore deductible), they should be related to a 100% business event, such as traveling for a work conference or training, and typically requires that you are away from your residential city for at least 24 hours. Eligible travel expenses for deduction include:
Travel to and from your destination regardless of the mode of transportation
Meals
Entertainment
Lodging
Parking and tolls
Business calls
If you’re planning to take a deduction for travel expenses, make sure you keep thorough track of your expenses and keep all receipts. In the unlikely scenario that the IRS audits you, travel is one of the most ambiguous expense categories, so it’s always good to keep this information on file.
Vehicle use for business. If you are using your car outside of your regular commute for business purposes, your mileage is deductible, as well as general upkeep expenses on your car. If you use your vehicle solely for business purposes, then you can deduct the entire cost of operating that vehicle. There are two specific methods for deducting business vehicle use; either method requires that you track all business miles for the year. You cannot deduct or count the miles driven between your home and your regular place of business; these are personal commuting expenses.
Standard mileage rate. Multiply the miles driven for business during the year by a standard mileage rate. Beginning January 1, 2019, the standard mileage deduction is $0.58 per mile.
Actual expense method. Track all of the costs of operating the vehicle for the year, including gas, oil, repairs, tires, insurance, registration fees, and lease payments. Multiply those expenses by the percentage of miles driven for business.
Maximizing Therapist Tax Deductions
The list goes on, with additional tax write-offs available for costs such as moving expenses, and salary and benefits for private practice owners who have employees.
Tax deductions can come in handy for private practice owners, and the key to maximizing them (and your sanity) is to keep all your business finances separate from your personal expenses and well-organized. This way, when the end of the year rolls around, you'll have all of your business expenses in one place.
More Private Practice Help
Meanwhile, working with Mind Money Balance and financial therapists like Lindsay can help you to adjust your mindset around money matters, and discover financial strategies tailored specifically for you. Check out a suite of mini-courses designed to help you as a therapist in private practice here:
About Sarita
Sarita is the Content and Partnerships Lead at Heard Bookkeeping. She lives in Los Angeles and is passionate about mental health, music, and the outdoors.
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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Some links included in this article are affiliate links, meaning I may earn a commission at no additional cost to you.
Guest writer Sarita Gulati is the content and partnerships lead at Heard. Sarita lives in Los Angeles and is passionate about mental health, music, and the outdoors.