The Guide to Getting the Most Out of Your Tax Deductions for Therapists

Every year in the Spring, the sun starts to rise a little earlier, the heavy coats get pushed to the back of the closet, and the dreaded tax season rolls around once again.

We all know how complicated the tax system can be in the United States, especially compared to some other countries. No matter how prepared you are for it, it seems almost everyone dislikes this time of year.

Among those who dread the deadline, the self-employed are likely top of the list. Running a business not only means owing more taxes, but also having to keep a running list of all your expenses with receipts and invoices. Without these, it’s really not possible to correctly calculate the amount you owe.

If you’ve been a private practice therapist for more than a year, then you probably know what we’re talking about. Unfortunately, many mental health therapists begin their private practice journey without fully understanding how to manage their taxes and finances in a savvy way. 

Still, tax payments and everything it entails is necessary. We all need to pay our dues as part of society to help fund government programs, schools, and the repair of potholes on the highway.

Filing self-employment taxes can be a big headache. Even if you’ve paid your taxes quarterly, you could still end up with a significant bill to pay. The silver lining is, though, if you’ve kept good track of your expenses, they can count as deductions from your income and lower the amount owed.

Tax Deductions for Therapists 101

Although almost anything money related— especially with word tax attached to it — can be nerve wracking, it’s actually the complete opposite with tax deductions. If there’s ever anything you can look forward to when doing your taxes, it’s this.

Tax deductions are exactly what they sound like — the amount you can deduct or subtract from the total taxes you owe. Tax deductions are also commonly referred to as tax write-offs or tax deductibles.

These deductibles are essentially the expenses you can take away from your total income for the year. This income minus your deductions is now recognized as your new income for the year. Since this amount is lower, the taxes you owe also go down. 

 If it’s done properly, you can save a pretty nice chunk of change for your private practice. It’s great to be able to deduct a bunch of expenses off your total, but there are a few catches. 

First, you need to keep track of all your receipts and invoices — no exceptions. This will not only make it easier for you to identify which expenses fall into the accepted categories; it will also help you choose whether to use an itemized or standard deduction for your business. Not only that, if you were to get audited, you’d need to produce all of these documents. 

Second, you need to know what deductions you qualify for — not just as a business owner but as a private practice therapist, counselor, or other mental health professional.

If you’ve been a private practice therapist for at least a year, you probably have some idea what we’re talking about. Still, it doesn’t hurt to have a quick refresher on general write-offs for anyone self-employed and those more specific to mental health professionals. You might even discover some you haven’t taken full advantage of yet.

General Tax Write-offs for Business Owners

Let’s start off with common tax deductions that apply to businesses, not necessarily specific just to therapists. 

Operating any type of business requires incurring ongoing expenses for purchases required to run and continue to improve it. The government recognizes this, which is why business owners have several qualified deductibles to help them save money when tax season comes around.

Advertising and Marketing

How much do you spend on advertising and marketing your services? 

Wouldn’t it be great if you didn’t have to pay taxes on the amount spent on these? 

Then you’ll be glad to hear that all of those expenses can be deducted from your income. All the money allocated into your marketing and advertising budget are qualified, regardless of what form they take. As long as the money goes into promoting you, your practice, or services, then it is allowed.

This includes:

• Print advertising, such as business cards, brochures, or flyers
• Paid promotions on Facebook and other social media platforms
• Online ads on other websites, including Google
• Getting listed on an online directory
• Email marketing services
• Website domain name

Association Fees and Memberships

No man is an island; we all want to connect with others, especially in our field. 

For therapists, organizations like the American Psychological Association (APA) are a great way to grow your network, discover new learning opportunities, have access to certain resources, and otherwise improve your skills. These premium perks often come with a corresponding price. 

A membership to Clarity Cooperative is included in this category, and being a part of our community provides therapists with resources for taxes, setting fees, and more. 

At the end of the year you can include all the association fees, membership costs, and similar expenses in your deductibles.

Credit Card Interest and Fees

Did you know that your credit card interest qualifies as a deduction on your federal tax return? 

If you’ve been paying interest on necessary business purchases, these can be written off. 

Aside from credit card interest, you can also deduct related expenses, like processing or annual credit card fees.

Other Bank Charges and Fees

Bank-related deductibles for self-employed business owners go beyond credit card interest and processing fees. Other types of bank charges and fees qualify as well. 

This means all those pesky miscellaneous bank charges (and we all know there’s a lot) can be written off from your total income. These include service charges, transfer fees, checking account fees, and even overdraft charges.

This is also one of the biggest reasons why keeping a separate bank account and credit card personal ones is recommended for your private practice. It makes keeping track of all business-related expenses much easier.

Start-up Expenses

Starting any type of business is no small feat. 

In most cases, you probably need capital to cover some of the expenses needed just to get your private practice off the ground. Thankfully, all of these count as deductions and can help you save a significant amount on taxes during your first year of practice. 

Qualified startup expenses include:

• Making a company strategy or business plan
• Business loan costs
• Research charges
• Technological fees
• Business cards

Although you may have other expenses that you used to “start up” the practice like advertising; they're not counted as a deduction in this category because they already qualify on their own. 

Ongoing Expenses

Office supplies might seem like an insignificant expense, but these can really add up over the course of a year. Also, when filing taxes, every penny counts so it’s just as important to keep track of these smaller purchases.

Normal office supplies like pens, paper, and staplers are tax-deductible. Its not just the standard items that qualify – if you were to ship a document to a client, the fees for postage would count also. 

Other qualified business purchases include:

• Mobile phone bill
• Internet bill
• Office rent
• Office utilities
• Business meals
• Salaries and wages

Depreciation Expenses

Any large purchases you’ve made for your practice can be deducted. In this case, large purchases are defined as anything that costs $2,500 or more. 

You have two options when deducting these from your tax bill:

First is to deduct the purchase from your taxes as a lump sum. You can only do this one year after making the purchase, though. That’s why it’s called depreciation expense — you wait for the value of your purchase to start depreciating or diminishing in value.

Second is to deduct the purchase in small increments. This is deducting a little bit every time tax season rolls around, as long as you keep using the item that was purchased.

Accounting and Bookkeeping

Good news — If you’re having trouble keeping up with all the tax requirements on top of managing your practice and seeing patients, you can hire professionals to take care of it for you. 

The services of an accountant or bookkeeper are considered essential for normal business operations. 

If you decide to take care of your own financial records and tax preparation needs, it's helpful to sign up for bookkeeping or accounting software which keeps track of expenses in one place. Clarity Cooperative also has a tool to help Optimize Your Deductions. If you were wondering, the fees for this are deductibles too. 

Self-Employed Therapist Expenses and Tax Deductions 

Now that we’ve covered the important general tax deductions for businesses, we can start to get a bit more specific. Below are those that specifically apply to self-employed therapists and other health care professionals.

Licensure Fees

All medical professionals require a license in order to practice — and therapists are no exception. The fees you need to pay to get your license or have it renewed all count as deductibles. Licensure fees towards opening the practice itself are also counted as tax deductions.

Insurance

Insurance can seem like a hefty cost, especially ones like malpractice, because it might feel like you won’t ever actually need it. Still, an ounce of prevention is better than a pound of cure. 

In the rare case that you need to file a claim or have a case against you, you’ll be happy to have this coverage. Premiums you pay for other types of insurance coverage, such as fire, credit, or liability, count as well.

Insurance fees may be a significant cost, but they provide a safety net that can save your business and license. Moreover, you can include them in your list of therapist expenses and tax deductions at the end of the fiscal year.

Therapy Software Services

If you subscribe to or purchase any software services, then you can add the costs to your list. In this case we’re talking about practice management softwares and solutions. These include programs you may use for appointment scheduling, taking notes, billing or payment processing, and more.

Personal Therapy

If you’ve ever wondered whether you can deduct therapy as a business expense, the answer is yes.

Being a therapist can be an incredibly rewarding job, but it’s far from easy. While you may be lightening the mental and emotional load of others, it also means you might be carrying some of it too — perhaps sometimes more than you can handle. This can lead to emotional exhaustion.

Seeking support from a fellow mental health professional is one of the best ways to manage and prevent burnout. Because this helps your professional development (less burnout = better work performance and quality of care for clients), it can count as a tax deduction.

Continuing Education

There’s no end to learning as a therapist. There are constantly new studies published, findings gathered, and various modalities recommended to make you a better, more informed professional. 

All of the continuing education courses, whether they’re refresher courses or through conferences and conventions are considered professional development. 

The cost of these courses can add up to be a fairly large amount, but they’re viewed as valuable investments. You’ll be happy to hear that all of the money you put into further improving yourself and your practice count as tax write-offs. This even includes professional publications, subscriptions, and the use of a vehicle or transportation to and from these courses.

Hiring a Finance or Tax Professional to Help with Therapist Expenses and Tax Deductions

A slightly easier way to take full advantage of all of the possible tax deductions you might qualify for, is to hire a trustworthy and reputable finance or tax professional. 

Knowing which deductibles apply to your business, as we’ve gone over here is great, but there are some categories that may apply only to certain situations or income brackets. A professional can also take a look at your books and receipts and find other expenses that could be written off. 

If you’re able to afford it and details aren’t your strong suit, working with a tax professional or a bookkeeper can take a heavy load off your shoulders. After all, these fees can be deducted as well. 

Maximize Tax Deductions for Therapists To Improve Your Bottom Line

Filing taxes is a challenge for everyone. Rules change every year, and if you’ve done them on your own in the past, you are probably just hoping they were done correctly..  

Tax season presents a unique challenge to those that are self-employed, because that money  isn’t automatically taken out of your paycheck. Staying on top of your bookkeeping, receipts, and maintaining some knowledge of write-offs can help you when the dreaded day arrives. If you take time to regularly maintain these records, it can be easier for you or a professional to identify deductions and increase your bottom line.

Our community seeks to help all mental health professionals continue their growth, as therapists, and business owners. Download our free spreadsheet and tax deductions checklist or try out our Expense Tracker and Calculator for Therapists with a free trial to the Pro subscription today. You deserve to feel confident and well-prepared for your taxes next year.