Jovan Johnson, MBA, CFP®, CPA/PFS
I understand that it can be overwhelming to think about all the accounting and tax complexities that come with owning a private practice. Most days your energy is already drained from serving and healing clients. However, it is important to carve out time to focus on your business rather than time in your business. There are many self-employed therapist tax deductions that you can take advantage of. Tax deductions can save you a lot of money in the long run. However, you must keep detailed records of your expenses in case of an audit, preferably in bookkeeping software. The first step is to become aware of the many tax deductions available to you as a self-employed therapist. Don’t let the IRS take more money from you than they should. I know this is a lot. So, while the prospect may seem daunting, rest assured—I’ve got you covered.
Here is a non-exhaustive list of the top tax deductions for self-employed therapists that you should consider to optimize your finances.
Top Self-Employed Therapist Tax Deductions
1.) Office Rent/Lease or Home Office
If your therapy practice operates primarily in a separate office space outside your home, you may qualify for deductions on the costs associated with renting or leasing that space, along with utilities. For many mental health practitioners who engage in face-to-face client sessions, office rent or lease payments represent a significant expense. The relationship between a mental health practitioner and their client is a crucial aspect of therapy and counseling. In fact, this relationship is built on trust, support, and confidentiality. For some clients to build the level of trust they need, they may want to meet in person. Therefore, you must have an office space that makes them feel comfortable.
Alternatively, if you conduct your business from your home, you might be eligible for a home office deduction. You may be able to deduct a portion of your mortgage payments or rent as well as utilities. There are two methods for calculating this deduction: the home office regular method and the home office simplified method. Consulting with a CPA can help you determine which approach offers the greatest tax benefit based on your individual circumstances.
Furthermore, did you know that expenses related to providing office snacks or meals during client sessions can also be tax deductible? These business meal deductions can provide additional tax savings for your practice. Learn more about business meals tax deductions.
2.) Office Supplies and Equipment
If you have a physical office to meet with clients, you will likely purchase items that help foster a safe and welcoming environment for your clients. For example, you may invest in soundproof rooms and window coverings for confidentiality or a wheelchair ramp to improve accessibility. These expenses incurred to improve your client’s experience are a tax write-off.
Don’t overlook the importance of office furniture in creating a comfortable atmosphere for your clients. Whether it’s seating arrangements or nice decor, investments in office furniture not only contribute to your client’s comfort but also qualify as a tax write-off.
In addition to these larger investments, numerous everyday office supplies and equipment are eligible for tax deductions. These may include essential supplies such as stationery, computers, printers, and phones. By keeping track of these expenses, you can maximize your deductions and optimize your practice’s financial efficiency.
3.) Books and Therapeutic Aids
Any investment made to enhance your client’s therapy sessions qualifies as a tax write-off. This encompasses a wide range of items designed to facilitate engagement and progress. Examples include therapeutic books, therapeutic audio, therapeutic games, and art therapy supplies. By investing in these tools and aids, you not only enhance the effectiveness of your sessions but also benefit from valuable tax deductions that support the growth of your practice.
4.) Advertising and Marketing
When it comes to promoting your private practice, every expense incurred in the pursuit of attracting potential clients qualifies as a tax write-off. From establishing your online presence with a professional website to investing in eye-catching business cards and captivating professional headshots, the range of eligible expenses may surprise you.
Additionally, expenses related to social media advertising, logo design, promotional materials, and subscription fees for directory listings such as Psychology Today are all deductible. By leveraging these deductions, you not only enhance your practice’s visibility and reach but also maximize your tax savings.
5.) Licensing and Certification Fees
Therapists often hold a variety of licenses and certifications, each tailored to their specific area of expertise and practice. In addition, the requirements for these credentials can vary by state and jurisdiction.
Many therapist certifications require some level of continuing education (CE) to maintain the license or certification. Some additional educational expenses you can deduct include supervision costs, books, journals, and trade magazines (i.e. Psychology Today) related to your profession.
Considering the multitude of licenses and certifications therapists may pursue, the associated fees can quickly add up. By staying up to date on your licenses and certifications, not only will you fulfill your regulatory requirements, but you will also reduce your tax bill.
6.) Membership Fees
Membership fees in professional organizations relevant to your field, such as the American Counseling Association, are tax-deductible expenses for therapists. Additionally, you can deduct the costs associated with membership in other professional networking organizations, such as Business Network International or your local chamber of commerce.
7.) Software
Building an efficient therapy practice often requires integrating various software tools to streamline operations and enhance client experiences. Fortunately, the subscription costs of software used for essential functions such as booking client appointments and invoicing are fully tax deductible.
This includes software dedicated to managing client appointments, generating invoices, and providing receipts. Common examples of deductible software include bookkeeping tools like QuickBooks, billing platforms such as Stripe, and practice management software like Simple Practice.
It’s important to note that while many billing software platforms, such as Ivy Pay or Stripe, charge a percentage of your revenue when clients pay by credit card, these transaction fees are also tax deductible.
8.) Professional Services
Your time is limited. Most days you are drained from serving clients. As you continue to grow your private practice, it becomes increasingly vital to enlist the expertise of professionals for essential services such as tax planning, tax preparation, bookkeeping, legal compliance, and more. Not only do these professionals offer valuable guidance and support, but their fees are also tax-deductible expenses.
Some aspects of practice management may fall outside your area of expertise or simply require more time and attention than you can afford. That’s where professionals like CPAs or accountants, tax preparers, bookkeepers, and attorneys come in.
9.) Health Insurance Premiums
As the owner of a private practice, you may find yourself without access to employer-sponsored health insurance, unless you have a spouse with coverage. In this scenario, you’ll likely be responsible for paying health insurance premiums for a policy obtained through the health insurance marketplace. To estimate the cost of this insurance, you can utilize this online calculator to determine whether you qualify for a tax credit to offset a portion of these premium costs.
Navigating health insurance as a self-employed therapist can be complex, but with careful planning and research, you can ensure that you have the coverage you need while optimizing your tax savings.
Bonus:
Can you write off therapy as a business expense?
This is a common question that I receive from self-employed therapists. In my viewpoint, the IRS allows deductions for most business expenses if they are deemed ordinary and necessary for your business. For Therapists, engaging in personal therapy is key to helping you stay balanced and serve your clients better.
By participating in personal therapy sessions, therapists not only prioritize their mental health but also gain valuable insights and perspectives that can benefit their practice. The opportunity to learn from other therapists fosters professional growth and development, ultimately strengthening the quality of care provided to clients.
Considering the dual benefits of personal therapy for both professional and personal growth, any costs incurred on these sessions can indeed be considered tax-deductible.
Bookkeeping for Therapists
To take advantage of these amazing tax deductions as a therapist, it is key to ensure that your books are in order. If you are in search of a CPA who can help you optimize your business finances, feel free to schedule a free consultation.
If you would like to learn more about how we can help you take advantage of all these self-employed therapist tax deductions, please feel free to contact us.
Disclosures
None of the information provided is intended as investment, tax, accounting, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Piece of Wealth Planning LLC does not promise or guarantee any income or particular result from your use of the information contained herein.