As a self-employed private practice therapist, handling taxes on your own may seem scary.
You'll want to know what kind of taxes you'll owe, instructions to file quarterly taxes, what tax deductions you qualify for at the end of the tax season, and more. Since you are taxed on the remainder of your gross income minus your costs to run your business, you'll want to keep track of your expenses.
In this article, we'll walk you through the top 11 tax deductions for therapists you can claim and reveal an automated way to record your tax receipts.
Note: If you are a private practice therapist who is looking to automatically maximize their tax write-offs, then try Bonsai Tax. Our app scans your business/credit card receipts to discover potential deductions for therapists. In fact, users of our software typically save $5,600 from their tax bill. Try our app free for 7-days today.
13 Tax Deductible Expenses Private Practice Therapists Qualify For
As a private practice therapist, you'll need to keep proper records of all your business expenses as evidence for the IRS. Be sure to keep your tax-deductible business receipts for at least 3 years after you file in case you get audited. You'll need to report these deductions on your Schedule C or profits and losses statement. You'll attach your Schedule C to your 1040 when you turn in your form.
Now, let's get into what you came for. Here are the top eleven tax deductions for therapists.
Legal And Professional Fees
As a private practice therapist, any legal and professional fees incurred in the course of your practice's ordinary operations are fully deductible.
These include payments to accountants, bookkeepers, tax preparers, lawyers, business consultants and other professionals. The costs can only be deducted if they are related to your business. For example, if you employ an attorney to assist you in drafting your practice policy, paperwork, or business entity creation, these fees can be written off. Even the fees related to receiving accounting advice can be written off as an expense.
Bank/Credit Card Processing Fees
You can get reimbursed for all of those pesky credit card/ bank fees your business has to pay throughout the year.
You can deduct all of your bank and credit card fees. This includes annual, service, transfer, and overdraft fees. it might be a good idea to have a separate bank account or credit card specifically for managing your business expenses. Being organized with different accounts could make filing taxes much easier.
Office Supplies
If you spent any money on office supplies such as staplers, pens, printers, paper, or even a computer, these office expenses are tax-deductible. Any office costs or supplies you pay to keep your small businesses workplace up and running can be written off. Not to mention, you can also deduct shipping costs/postage stamps from your tax bill.
Start-Up Expenses
When you are getting your therapy private practice off of the ground, you may incur and deduct some start-up costs. These include a company strategy, research charges, business cards, loan costs, and technological fees are all part of the pre-opening startup costs. Advertising, promotion, and labor costs are all part of the post-opening starting costs.
Note: Our tax software can help you file your tax returns much easier AND save you a ton of money by automatically recording your business expenses. Our app scans your bank/credit card receipts to discover IRS eligible tax deductions at the push of a button. Folks who use our software save an average of $5,600. Try a free trial for 7-days here.
Continuing Education
As a private practice therapist, it is in your best interest to always keep up with industry best practices and improve your skills. Any classes, workshops, conferences, and other industry-related continuing education expenses qualify as a tax deduction. Again, these expenses can be deducted as long as they are related to your profession. Subscriptions to trade or periodicals, literature relevant to your industry, and appropriate courses fit into this category.
Office Rent
If you are running your private practice in an office (or even at home) you can deduct the cost of your rent and utilities such as water and electricity. If your business is in your home, you can deduct the business portion of your housing.
There are 2 methods to do so: the regular and the simplified method for home office deductions. Let's quickly review how to claim both methods.
Regular Method
The regular method determines the value of your home office by comparing real spending to your whole housing expenses. You'll need to keep proper records or receipts of your home working studio expenses. Mortgage interest, taxes, upkeep and repairs, insurance, utilities, and other expenses are all deductible based on the percentage of your home used for business.
You can track your expenses with our free home office worksheet.
Simplified Method
The simplified method for deducting home office expenses is fairly easy to calculate. Simply take your home office space's square footage is multiplied by the IRS's predetermined rate. For up to 300 square feet of area, the standard rate is $5 per square foot. Measure your dedicated home studio space and multiply it by the standard rate to get your tax deduction total.
Membership Fees For Professional Organizations
Therapists with membership fees for any professional organizations or clubs are deductible. If being a member of a recognized business group or learned society is relevant to your career, you can write off the annual subscriptions to them.
Travel Expenses
If you have to travel outside of your residential city for business (at least 24 hours), all of the meals, lodging, entertainment, business calls, parking tolls, and transportation expenses count as tax deductions.
Here's a quick breakdown of some of the business travel expense deductions you can claim during tax season:
- 50% of the cost of meals when traveling
- baggage charges.
- air, rail, and bus transportation fares
- hotel or AirBNB expenses.
- full deduction for expenses operating and maintaining a car, including the cost of gas, oil, lubrication, washing, repairs, parts, tires, supplies, parking fees, and tolls.
Business Meals
Mental health therapists may qualify for a meal tax deduction. For any meal purchased in connection with your business, such as a lunch meeting with a client or consultant. Typically, you can only deduct 50% of the cost of business meals. However, President Biden is allowing 100% meal deductions in 2021 and 2022 for food and beverages provided by a restaurant.
Cell Phone
Chances are, you use your cell phone for business and personal use. Unless you have a separate business cell phone, you cannot write off the entire cost of your cell phone as a fully deductible tax expense. Simply figure out the percentage you use your phone for personal and business reasons and write off the portion related to your services.
Insurance
If you have to purchase insurance for your services such as medical malpractice insurance, these expenses are tax-deductible.
Advertising Expenses
Marketing your private practice services can be a HUGE financial expense. Luckily, you can write off the money you spend on advertising. Advertising expenses include Google ads, flyers or other print media, radio mentions, and broadcast time.
Mileage
Outside of your commute to work, you can deduct the business-related miles from your taxes.
There are two methods to deduct vehicle expenses: Standard Mileage Rate or Actual Expenses method. If you deduct mileage for taxes, you cannot write off actual expenses such as gasoline or car repairs. You can only select one method. The 2021 IRS standard mileage rate is .56 cents per mile. All you have to do is total up the miles you drove for work and multiply it by the standard mileage rate to figure out your deductible miles expenses.
Qualified Business Income (QBI) Deduction
Since the 2018 tax year, private practice therapists are eligible to deduct 20% of qualified business income made available in the Tax Cuts And Jobs Act. This financial tax break is reserved for "pass-through" businesses. The QBI deduction reduces the taxable income of partners, sole proprietors, and other business owners so that the effective income tax rate paid by all types of business owners isn't as desperate. As long as total taxable income is less than $157,500 ($315,000 if filing jointly), the specified service trade or business (SSTB) classification isn't applicable.
Time To Maximize Your Tax Deductions!
We hope this article helps you save a lot of money on your private practice therapy tax return. We reviewed the top 13 tax deductions for therapists to avoid paying self-employment taxes.
Don't forget small business owners pay taxes quarterly throughout the year.
At the end of the year, if you have any questions in regards to deductions you qualify for, we always recommend you contact a CPA or accountant for tax advice.
