Takeaway: Figuring out your taxes and finances can be overwhelming, especially when you have your own business. In this post, we share some insider tips that can help you make sure you’re getting all the self employed therapist tax deductions that you qualify for.
As a private practice therapist, you’re used to helping others. However, your own self care is essential as well. This includes mental health, physical health, and even your financial health.
While therapists are often fed a narrative that discourages them from prioritizing their finances, feeling secure in your income is essential for your wellbeing. It can even help prevent burnout.
With that being said, managing your money is often easier said than done. Taxes and finances can feel intimidating for anyone, especially for entrepreneurs. Keeping all of the details straight can feel like a full time job in and of itself.
As tax experts for wellness professionals like you, we’re here to help. There are tons of tax deductions for mental health therapists that you can (and should) take advantage of in order to boost your financial well being.
What are tax deductions for therapists?
If this is your first year filing your business taxes, you may be unfamiliar with the concept of a tax deduction. Deductions are business expenses that you can essentially subtract from your income. By reducing your taxable income, you reduce the amount of taxes you are required to pay.
However, not all business expenses are tax deductible. The Internal Revenue Service (IRS) has certain rules about what qualifies as tax deductible expenses.
As a general rule of thumb, make sure to keep all of your invoices and receipts so you (or your tax professional) can reference them to determine if a transaction counts as a tax deduction. It’s also important to make sure you keep personal expenses separate from the business finances for your therapy private practice.
Depending on your specific business entity and other considerations (such as whether you are filing jointly with a spouse), you may have the option to use a standard deduction. This is a flat rate that you can deduct from your taxable income. However, using itemized deductions on your tax return can sometimes allow you to save more.
11 tax deductions for mental health therapists
The IRS doesn’t identify deductions that are specifically for therapists. However, there are many common tax deductions that apply to private practice owners. While this is not an exhaustive list, these are some of the most common tax deductions for therapists that you can take advantage of.
1. Pre-opening startup costs
Unlike other small businesses, a private practice doesn’t usually require much financial investment to get up and running. After all, you don’t need to purchase inventory or order products to provide your service.
However, there are still some costs associated with opening your private practice, and they can add up. Business registration, purchasing insurance, and printing business cards are all startup costs that are typically considered tax deductible.
According to the IRS, business owners can deduct up to $5,000 worth of expenses for opening a private practice or other small business. Make sure to keep any tax deductible business receipts as part of your records.
2. Legal and professional fees
On a similar note, legal and professional fees incurred while starting or running your business are also tax deductible. For example, if you worked with a lawyer to register your business entity, you may be able to write off that expense.
The cost of licensure and other credentials are also considered professional fees. Membership fees to professional organizations, such as the National Association of Social Workers or American Counseling Association, are other important tax deductions for therapists.
3. Advertising expenses
As a private practice owner, you know the importance of attracting your ideal client. You likely put a lot of effort into getting your name out there so you can connect with the clients who you can help most.
Thankfully, any money spent on advertising expenses is usually considered a write-off. That includes fees for paid directories like Psychology Today, the cost of business cards and flyers, Google ads, and more.
Advertising can also include labor costs. For example, if you hire a marketing expert to help you promote your business or work with a graphic designer to get your website up and running, you may also be able to write off those expenses.
4. Home office expenses
Your home office can be considered a tax deduction if you use it exclusively for your private practice. If you have a spare bedroom where you conduct virtual therapy sessions but also use it for guests, for example, you would not be able to write off those expenses on your tax bill.
When deducting home office expenses, you can use one of two methods: the simplified option and the regular method. The simplified option offers a standard deduction of $5 per square foot of space, with a maximum of 300 square feet. You can write off expenses such as mortgage interest, but there is no deduction for depreciation expenses on your home.
With the regular method, you must determine the actual expenses for your home office. This is typically calculated based on the percentage of your home that is devoted to office space. That percentage can then be applied to relevant costs such as utilities, insurance, depreciation, and more.
5. Office rent
While many therapists have a home office, others run their private practice from an office. If this is the case for you, your office rent can typically be considered a tax write off. This also applies to other office costs such as your phone or electric bill, internet bill, heating bill, maintenance fees, and more.
Office supplies are another tax deductible business expense. Items such as small furniture, pens, paperclips, notepads, clipboards, decor, books, rugs, tissues, and fidget items for your clients are all eligible to be written off your tax bill. If you have a home office, you can also deduct office supplies on your tax return.
6. Phone and computer costs
Other costs associated with running your business, such as using a phone or computer, may also qualify as tax cuts. If you have a phone that you use exclusively for business calls, you can deduct the entire cost.
However, if you use it for your personal calls and for business purposes, you’d only be able to write off the percentage that is for business usage. The same goes for computers.
There are certain types of computer software that you can also deduct when you pay taxes. For example, if you use a practice management software such as Simple Practice or TherapyNotes, you may be able to write off the associated costs.
7. Credit card processing fees and bank fees
While credit card fees and bank fees are typically low, they can add up over time. Costs such as overdraft fees or monthly service fees are tax deductions for therapists that are often overlooked entirely.
Many payment processing platforms, such as Stripe, also charge credit card processing fees. If your clients pay you electronically, be sure to keep records of these costs so you can deduct them come tax season.
8. Continuing education expenses
Part of running your own practice (as well as being a therapist in general) is continuing education. Not only is it a requirement for licensure, you have an ethical obligation to stay up to date on current research in order to best support your clients.
There are some free options for continuing education credits, but may courses and trainings are paid and can count as business deductions. Costs for an online or in-person training, as well as registration fees for a course at your local college, are considered tax write offs so long as they directly relate to your work as a private practice therapist.
9. Business meals
Similarly, business meals are eligible to be deducted from your income taxes. Unlike other business owners, a private practice therapist does not “wine and dine” their clients. However, there may be some circumstances that call for business meals.
For example, meals purchased at a conference out of town are likely eligible to be written off. If you’re running a catered training for other clinicians with their own therapy business, you can likely deduct those costs as well.
In order for the meals to be written off, there are certain requirements that must be met. As the business owner, you must be present during the meal, and it needs to be from a restaurant-not a grocery or convenience store. It also cannot be “lavish or extravagant.”
10. Business travel expenses
Travel expenses are other important tax cuts for therapists who own private practices. Parking fees, tolls, business calls, lodging, transportation expenses, and taxi services are all examples of eligible deductions from your total taxable income.
According to the IRS, business travel must be outside your “tax home” (in other words, your residential city) in order to qualify as a deduction. For example, if you live in Boston and attend a conference within the city limits, your travel expenses may not necessarily qualify.
If you use your own car for business travel, you may also be able to write off the associated costs. There are two methods for calculating cost: the standard mileage rate method and the actual expenses method. The standard mileage rate is a formula provided by the IRS, whereas the actual expenses method involves calculating the exact cost of using your vehicle.
11. Qualified business income deduction
The 2017 Tax Cuts and Jobs Act allows certain business owners to deduct up to 20 percent of their qualified business income. This deduction is available whether you choose to itemize your deductions or take the standard deduction on your Schedule C form.
Our team can help you make sure you’re getting all the self-employed therapist tax deductions you qualify for
You don’t need to find all the tax deductions for mental health therapists yourself-that’s where we come in.
We recognize how stressful it can be to manage your finances. Whether you’re anxiously approaching your first tax season as a private practice therapist or want to be proactive in caring for your financial wellness, our tax preparers and finance experts are here to help.
We offer a range of services, including bookkeeping, tax advice, and personalized financial support. Schedule your free 20-minute consultation today.