The Top 13 Tax Deductions For Therapists In 2022

Min Read

Tom Smery

Tom Smery is a certified CPA for over a decade. In his free time, he writes articles to pass on his expert knowledge on taxes and accounting. Thomas has a wide range of deep knowledge on 1099 taxes, and finance topics. You can find him fishing when he is not preparing taxes for his clients or writing about accounting.

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 14-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 14-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.

What Defines a Verbal Contract?

A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.

Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.

Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.

The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.

Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.

When is a Verbal Agreement Legally Binding?

For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:

Offer and acceptance: An offer is made and accepted by another party involved in the agreement;
Consideration: The involved parties must exchange something of value (money, a service, time, etc), this is known as consideration;
Intention and certainty: All parties must fully understand the terms of the contract and intend to make a legally binding agreement freely; and
Capacity: The parties must have the capacity to legally enter into the contract; they're above age and of a stable mindset.

Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.

How strong is a verbal agreement in court?

Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.

If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.

That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.

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When are verbal agreements not enforceable?

There are some types of contracts which must be in writing.

The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:

The sale of real estate or vehicles
Real estate leases lasting longer than one year.
Property transfer following the death of the owner.
The case of a party agreeing to pay debt for someone else.
Any contract that requires more than a year to fulfil.
A contract involving and exceeding a specified amount of money (which varies by state).

Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.

Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.

How are Verbal Contracts Enforced?

Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?

How can you prove an oral contract?

Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!

If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.

Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.

Written vs Verbal Contracts: What's the Verdict?

Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.

So, ultimately, the question is: written or verbal agreements?

Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.

Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.

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Say hello to digital contracts

Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.

There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.

Benefits of written contracts

A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.

Create Professional Contracts with Bonsai

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With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.

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