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. The dreaded tax season rolls around once again.

We all know how complicated the tax system can be in the United States. 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 not possible to calculate the amount you owe.

If you’ve been a private practice therapist for more than a year, then you know what we’re talking about. Many therapists begin their private practice journey without a good understanding of taxes. As a result, they don't 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. Taxes 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 good news is that the expenses you've kept track of can count as deductions from your income. It will lower your income and as a result lower the amount you owe.

Tax Deductions for Therapists 101

Although almost anything money related 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 referred to as tax write-offs or tax deductibles.

These deductibles are 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 make it easier for you to see 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 these documents. 

Second, you need to know what deductions you qualify for. This is as a business owner and 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. 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. These are not specific to only therapists. 

Operating any type of business requires incurring ongoing expenses. This means purchases required to run and continue to improve it. The government recognizes this. So, business owners have several qualified deductibles to help them save money during tax season.

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 for the amount spent on these? 

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

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 looking to connect, the American Psychological Association (APA) is great. You can find new learning opportunities, access certain resources, and improve your skills. The premium perks of being a part of an organization often come at a cost. 

A membership to Clarity Cooperative would fall under this category. Our community also provides therapists with resources for taxes, setting fees, and more. 

At the end of the year you can include all the association fees and membership costs 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 a write off. 

You can also deduct related expenses, like processing or annual credit card fees.

Other Bank Charges and Fees

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) count too. These include service charges, transfer fees, checking account fees, and even overdraft charges.

This is one of the main reasons why you should keep separate business and personal bank accounts. 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'll need capital to cover some of the expenses to get your private practice off the ground. Thankfully, all these count as deductions. Start-up expenses 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

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 add up over the course of a year. Also, when filing taxes, every penny counts so it’s as important to keep track of these smaller purchases.

Normal office supplies like pens, paper, and staplers are tax-deductible. Its not only 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 anything that costs $2,500 or more. 

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

First is to deduct the amount 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 item to start depreciating or diminishing in value.

Second is to deduct the amount in small increments. This is deducting a little bit every time tax season rolls around. You can do this as long as you keep using the item.

Accounting and Bookkeeping

Good news — If you’re having trouble keeping up with all the tax requirements, you can hire someone to do it for you. Accountants and bookkeepers are essential for normal business operations.  

If you decide to take care of your own accounting and bookkeeping, you'll need to be organized. Signing up for a software can help you keep 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 general tax deductions for businesses, we'll get more specific. Below are those deductions that apply to self-employed therapists and health care professionals.

Licensure Fees

All medical professionals need a license to practice — 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. 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 count as well. Examples are fire, credit, or liability insurance.

Insurance fees can be a significant cost, but they provide a safety net for your business and license. 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 buy 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 are programs you 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 a 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 another therapist is one of the best ways to manage and prevent burnout. Because this helps your professional development it can count as a tax deduction. Less burnout = better work performance and quality of care for clients.

Continuing Education

There’s no end to learning as a therapist. There are always new studies published and findings gathered. You might learn a new modaility that makes you a better and more informed therapist. 

Continuing education courses are considered professional development. It doesn't matter if its a refresher course, through a conference or convention. 

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

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

The easiest way to take advantage of all the possible tax deductions you qualify for is to hire someone. Not anyone though, you'll want a trustworthy and reputable finance or tax professional. 

Knowing which deductibles apply to your business is great. But, there are some categories that only apply to certain situations or income brackets. A professional can also take a look at your books and receipts. They might find other expenses to write-off. 

If you’re able to afford it, 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're likely hoping you did them correctly.

Tax season presents a unique challenge to those that are self-employed. 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 during tax season. If you take time to maintain these records, it can be easier for you or a professional to identify deductions and increase your bottom line.

Our community helps all mental health professionals continue their growth as business owners. Download our free spreadsheet and tax deductions checklist. 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.