As a self-employed therapist, taxes are important (unfortunately!). If you’re a therapist, psychologist, counselor, psychiatrist, or any other type of mental health professional in private practice, understanding what you can write off (that is, to lessen your tax burden) can save you thousands each year. For many therapists, discomfort, stress, and worry surround the entire tax process, and that’s okay.
What are Tax Deductions?
Before we dive in to what you can deduct, what are tax deductions? According to the Tax Foundation, a tax deduction is:
“A provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions.
In terms of owning a business, you can also make tax deductions, or write-offs, to reduce your liability to the government.
Choosing a Business Structure
If you’re thinking about starting a private practice in counseling, psychology, or psychiatry, choosing the right business structure can change how you’ll be taxed. If you already have a business structure set up, skip to the next section.
When starting a practice, you should consult with a tax professional, such as a CPA, to help guide you to the best structure for your therapy practice. Let’s review some of the possible business structures:
- C Corporations
- S Corporations
- Sole Propreitorship
- Limited Liability Company (LLC)
Which structure should you choose? Well, that depends on your goals for the practice.
For most self-employed therapists, you’ll be choosing a pass-through business structure. The opposite of this would be a C corporation where you are taxed at the corporate level then also again on the person level. in a pass-through business, money flows from the company to the owner, hence the “pass-through” name.
Now that we understand what a pass-through business structure is, let’s dive into the top self-employed therapist tax deductions.
Common Self-Employed Therapist Tax Deductions
In 2017, the Tax Cuts and Jobs Act enabled a 20% deduction on qualified business income (QBI) for pass-through entities. This allows many pass through entities (such as sole proprietorships, partnerships, and S corporations) to deduct up to 20% of QBI.
In addition, here are some common deductions for self-employed therapists:
Home Office Expenses
During Covid-19, we saw a massive uptick in therapists working from home. Because the pandemic forced many mental health professionals to work from home, technology was quickly adopted, allowing therapists to continue working from home. Many therapists I speak with still operate part of or the entire practice remotely. In a home office, you can deduct things like: Computers, printers, staplers, pens, scissors, printer ink, furniture, cleaning supplies, etc (as long as these items are used exclusively for your practice).
Regarding writing off part of your rent or mortgage, (as well as things like HOA, housekeeping, landscaping, utilities, real estate taxes), a very common method is to track all of these expenses and multiply this number by the percentage you’re using. For example, if your rent is $1000.00 per month for a 1000 square foot apartment, and you use 200 square feet for your home office, you can multiply $1000.00 X 20%, which equals $200.00 that you can write off.
Office Rent and Utilities
one benefit of renting an office exclusively for your private practice’s use is that you can write off the entire amount. This makes accounting for this write-off a piece of cake. You can also write off utilities in your office if you use them exclusively for your practice.
Advertising, Marketing, & Promotions
When it comes to marketing for a therapy practice, there are a multitude of different strategies you can be using. Here are some common ones we see therapists using that can be written off:
- Advertising, such as on Google or Social Media
- Search Engine Optimization (SEO) services (typically a monthly service that can be written off)
- Website audits
- Website build costs
- Website maintenance plans
- Website hosting
- Website domain costs
- Social media management
- Email marketing
- Branding and graphic design work
Advertising, marketing, and promotions for your therapy practice can be written off 100%.
Association and Membership Fees
If you belong to professional organizations, you can deduct your membership fees. Likewise, if you belong to paid directories (ours is free to join!), you can write those off too.
Meals that you have purchased related to your business (such as coffee with a potential therapist employee) can be written off.
Business Registration and License Fees
Each year, your practice will most likely require paying some sort of registration fees (depending on your state). You may also need to pay for yearly licensing to maintain good status.
Bank Charges and Fees
Banking charges and fees do happen from time to time in any business. It’s important that you account for these and write them off.
Did you take any continuing education (CE) this year? If yes, write those off!
Liability and malpractice insurance can be written off. These can be costly so it’s important to include these.
When it comes to managing your practice, professional fees are common. These can include payments to accountants, CPAs, bookkeepers, lawyers, marketers, and more.
One perhaps lesser known self-employment tax deduction for therapists is the ability to write off personal psychotherapy, as it helps you to improve your mental health and to help you grow in your profession.
EHR and Other Software
Many therapists use EHR software and other scheduling type software, which charge on a monthly basis.
Think about all the things you buy for your office, such as paper, printer ink, tape, postit notes, handbooks, pens, etc. Make sure you you track all these little office supplies, they add up.
Are you traveling for business purposes? These expenses can be written off: airfare, car rentals, train expenses, taxis and ubers, hotel fees, and travel meals. These should be 100% related to business, such as going to a business event, conference, or travel therapy sessions. These travel activities should require you to:
- Be at least 100 miles away from your home
- Stay at least 1 night
- Be ordinary and necessary
Vehicle Used for Business
If you use your car to travel outside of your regular commute for business purposes, you can deduct mileage as well as general upkeep of your car. You can use one of two common methods to deduct vehicle expenses:
- Standard Mileage Method: Keep track of the miles you drive and multiple this number by the current rate set by the IRS (in 2022, it is currently 62.5 cents per mile).
- Actual Expense Method: Track all the costs of operating your vehicle for the year, including gas, oil, repairs, tires, insurance, fees, and lease payments. After you have this total number, multiple it by the % of miles that you drove for business. For example, if all of your expenses totaled $2000.00 for the year, and you drove 2000 out of 4000 miles for business, you can multiple $2000.00 X 50% = $1000.00 total of your vehicle expenses.
Maximize your Self-Employed Therapist Tax Deductions
When in business, it’s important to lower your taxes as much as possible so that you can thrive as a therapist. As a business owner, it’s a difficult process to go through on your own. An experienced CPA can help ease your burden and guide you to more savings. CPAs also know many tax loopholes that can save you BIG money each year.
If you’re brave enough to do your own taxes, we hope that our list of self-employed therapist tax deductions was helpful to you. Onward to improving your therapy practice!
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