Tax Deductions and Write Offs for Private Practice Therapists
The first time you consider tax write offs and deductions, it can be overwhelming. I get it, my fear of the caricatured, fedora wearing taxman lives on in my nightmares. While I want to write off as many expenses as humanly possible for the sake of not over paying in taxes, my fear of an audit and doing something wrong is greater.
What counts as a tax deduction or write off for a mental health therapist?
“Can I write off Botox, so I can erase the concerned therapist lines between my eyebrows?”
I appreciate that my tax preparer is conservative when he considers what counts as a deduction, and what may be too grey for his and my comfort. I have thrown many tax deduction ideas out to him and he has shut them down, respectfully. Unfortunately, and Krav Maga classes are not tax deductible. I now err on the side of caution; I would rather claim deductions that I know for sure are legitimate rather than find out they are not when I am being audited by the IRS. Tax deduction rule of thumb: does this directly impact how I perform therapy or how I run my business?
I have received well meaning advice from other business owners about what counts as a deduction. I have been told that any self care activities, such as massages, reiki or a spa day counts as a deduction. The reasoning behind this is that in theory I would be a better clinician if I am relaxed and well rested. Oh how I wish this was really a write-off, but alas… it is not.
Other bad advice I have received is that if I go to Home Depot and purchase a heap of items for myself, and also purchase something small for my office, then the entire itemized receipt is a write off. Again, this is also false. Beware the well meaning false profits of tax preparation; they are out there and they are convincing.
Tax deduction rule of thumb: does this directly impact how I perform therapy or how I run my business?
If the answer is a clear “Yes!”, then write it down. If you have to justify it through nuanced language and it really just adds to your own personal benefit, then it is best to table it.
How you keep track of your deductions is up to you. Honestly, I just use an Excel sheet; but I don’t have a ton of deductions. If you anticipate a lot of deductions, an app could be helpful to manage and keep track. It is also super convenient that receipts are often emailed these days, and my credit card statements can also be used as a back up if you have lost a receipt.
Mental health therapist related tax deductions
There are many tax deductions that are specific to you as a mental health clinician and sole proprietor. These are the deductions that other business owners don’t need to think about, and what could be missed by an inexperienced tax preparer. All of these elements contribute to your role as a clinician and a business owner.
Membership dues (such as to EMDRIA or NBCC)
Licensure or license renewal
Continuing education costs
Malpractice insurance
Personal psychotherapy (depending on how much has been paid and how comfortable your tax preparer is with this deduction; its arguable whether it is a valid business write-off)
Billing, scheduling and bookkeeping software services (such as Simple Practice or Therapy Notes)
Business meals with other therapists or professionals to discuss your business
Books or other tools used for therapy
Office related tax deductions common for therapists
Whether you rent office space or use a home office for telehealth sessions, your office and anything purchased for it is a tax write off. These are things you may want to be good at keeping track of, they add up quickly!
Office space rent and utilities
Home office ($5 per square foot with a maximum of 300 square feet)
Depreciation of large purchases from previous years (such as your computer or office furniture)
Office expenses and supplies; including cleaning supplies, refilling hand sanitizer, decor, etc.
Phone and phone servicer payments (if this is your personal phone, this can be discussed with your tax preparer on how much of this expense qualifies as a business write off)
Internet for your office and home office (if this is your personal internet, this can be discussed with your tax preparer on how much of this expense qualifies as a business write off)
Magazine subscriptions and other entertainment material in the office
Business tax deductions common for self employed therapists
These are the deductions that may be no brainers to some, but may not be on your radar as a new business owner. Some of these things may not apply to you at all. For instance, I don’t really use my car for my business since driving to and from work doesn’t count. I also have yet to travel for the sake of my business, since most classes and conventions are now help online.
Marketing and advertising
Bank fees such as overdraft fees or maintenance fees
Health insurance
Legal or professional fees paid
Travel expenses (not counting driving to and from work, but if you were to travel for a patient or for a class)
Vehicle use and milage (not counting driving to and from work, but if you were to travel for a patient or for a class)
As you are preparing for your taxes, please take a look at this complete list I have complied of everything you need to have gathered for your tax preparer.
TL;DR
Tax deduction rule of thumb: does this directly impact how I perform therapy or how I run my business?
Find a tax preparer that is by the book. It is better to be conservative in your deductions, rather than grey area deductions that could get you into some trouble later.
Use an app to track deductions if you think you will have many. I don’t have many so I just use an Excel sheet.
There are deductions that are related to you as a clinician, your office, and typical business related deductions. Comb though the list carefully and see what applies to you.
Take a look at my complete list of everything you should gather as you prepare to meet your tax preparer.
