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Tax codes change quickly. If you’re a therapist, you might not be aware of which tax deductions you should still be taking. With simplified tax deductions for the self-employed and the 2017 Tax Cuts and Jobs Act, you might still be unclear of what you should be doing with your tax return.
Let’s take a look.
What Are Tax Deductions for Therapists?
First, therapists operate in different ways. Some therapists operate as 1099 contractors (independent contractors) who work through multiple venues, such as online. Other therapists work for a clinic. Still other therapists are self-employed.
How you work and whether you receive W2s or 1099s actually have more of an impact on your taxes than your industry. For instance, a therapist who owns their own company will likely need to pay self-employment taxes (their half of FICA, SUTA, etc). A therapist who works for a clinic will have a W2 and won’t need to pay their own taxes, but will still have similar deductions.
The Most Popular Tax Deductions for Therapists
The following tax deductions should apply to both Schedule C therapists and therapists who work for another company.
1. Books, Magazines, Subscriptions, and Research Materials
Any materials that you purchase for continued education, learning, or research will be tax-deductible — so make sure you’re logging these properly. This includes, for instance, subscriptions to online psychology magazines, as well as books that you purchase from the store to further research new methods of therapy.
2. Home Office Equipment/Expenses
Your home office is a percentage of your home, so usually, people take a deduction based on the square footage of their home that they use. In addition to that, any home office equipment and expenses, such as utilities, will also count toward your tax deductions. Internet, electricity, printers, copiers; it all counts.
3. Office Rent
If you’re renting an office somewhere, your office rent is probably your largest and most significant deduction. Your office rent also includes any other fees that you pay associated with your office, such as paying a fee for signage outside.
4. Mailing and Courier Fees
Mailing and courier fees can get expensive fast. As long as it’s for a business purpose, your stamps and postage are considered to be deductible. So, make sure you track all your mailing and courier fees as they’re accrued. That includes fees attached to other expenses, such as the cost to ship a piece of equipment.
5. Marketing and Advertising
However much marketing and advertising you do, it’s deductible. A lot of therapists advertise online through ads or through billboards and posters. The cost to print business cards, for instance, is actually a marketing and advertising cost; you can deduct this cost from your expenses. Any costs that you have to maintain a website will also fall under “marketing and advertising,” as will any social media campaigns that you paid for.
6. Software Platforms
EHR platforms, in particular, are a bona fide requirement for a career. But therapists can deduct all the software platforms they use, including QuickBooks software that they might use to improve their financial strategy, print financial records, and (yes) do their taxes. Software platforms are a deductible business expense.
7. Finance Charges and Credit Fees
Any bank-related fees or credit card processing fees are also deductions for a therapist and any other business owner. You should be tracking any interest accrued with banks, any financial charges like wire transfer fees, and any credit card processing fees, as these all can add up and are the cost of doing business.
8. Travel Expenses
If you’re traveling for a psychology-related seminar, for instance, you don’t need to absorb the cost of those travel expenses. Those travel expenses will be tax-deductible. Travel expenses do have to be directly related to your business, so you can’t write off a vacation (even if it was sorely needed). But you can write off expenses that are associated with traveling for business, such as the meals that you had when you were on a business trip.
9. Liability, Health, and Dental
All insurance is generally deductible. That includes liability insurance, health insurance, dental insurance, and even homeowner’s insurance if your homeowner’s insurance also covers your home office (it would only be the percentage that covers your home office). You may also have business owner’s insurance, errors and omissions insurance, umbrella insurance, and a variety of other insurance policies.
10. Depreciation of Equipment
When you purchase equipment, you have an asset; it has value. Over time, it depreciates in value. For instance, a $1,000 laptop will be $500 in the next year. You have the option of depreciating on a schedule or just taking simplified depreciation and depreciating the whole amount as an expense. When you do that, the entirety of the equipment is tax-deductible.
11. Meals and Entertainment
It used to be that meals and entertainment were a 50% deduction on your taxes. Throughout 2021 and 2022 they are a 100% deduction. If you’re going to meals to discuss business, then that meal is deductible; keep your receipts! But keep in mind that real business meetings over meals are fairly rare, so you need to make sure that the business meeting is a legitimate business meeting.
12. Business Vehicle Use
Like a home office, you may be using your personal vehicle for business use. Track your mileage when you use your vehicle for business; you can get reimbursed for that mileage. This could be driving to and from work but also driving to and from a place where you’re meeting a patient or driving to and from a place where you’re receiving continuing education.
13. Continuing Education
Continuing education costs are also tax-deductible, and you can even get a tax credit under certain situations. Make sure to book all your continuing education and licensure costs, as these are costs that are directly related to maintaining and upkeeping your business.
14. Supervision Expenses
Do you still need to go through supervision? Many therapists start out under supervision and this can be pretty expensive. Luckily, supervision expenses are tax-deductible just like any other business expense. Log all the hours that you go through supervision and the amounts that you pay while under supervision.
15. Professional Organizations
Professional organizations, professional fees, and certification costs are also tax-deductible. That includes professional organizations that may be optional to join, as long as they are career-related and provide a bonus to your business.
In short, pretty much anything that’s directly related to running your business or building your business is going to be a tax deduction. Anything that’s related to your personal life, your personal development, or your leisure time is not going to be a tax deduction. It’s up to you to appropriately code each of your transactions.
What Isn’t Deductible for Therapists
Student loan interest is not deductible for therapists, which can catch some people up. While continued education is deductible, your actual student loan for becoming a therapist isn’t a business deduction. It’s a personal deduction; it shows up on the personal side of your taxes.
While this is an important distinction, if you have pass-through income (a partnership, an LLC taxed as a partnership, or a sole proprietorship), it will eventually wash out the same way; you’ll get the deduction. But if you’re structured as a corporation (or an LLC taxed as a corporation), you will see the difference, because the tax deduction isn’t going to impact your business revenue.
This is, again, where the structure of your therapy practice does matter. Therapists should strongly consider the consequences of their business structuring as far as taxes go. For most therapists, a partnership or LLC is better for taxes — but it doesn’t afford the liability protection of structuring as a corporation.
Getting the Right Tax Deductions
Therapists have a lot of tax deductions that are directly related to owning a home office. If you don’t own a home office, much of your taxes are going to be relative to your expenses; meals and entertainment, mileage, etc. These are traditional expenses that most professionals and business owners might have.
Today, most therapists actually won’t need to itemize their taxes. Itemization really only happens if you have a lot of income and expenses, if you have a particularly unique situation (such as having a high mortgage interest or made significant charitable contributions ), or if you underwent a specific change of life (such as having a lot of medical bills).
At the end of the day, your tax deductions are highly specialized not for your career, but for you. So, if you still have questions about your tax deductions, you should talk to a professional. They’ll be able to walk you through the most popular tax deductions for therapists and make sure that you’re getting the breaks you need
Disclaimer: Please keep in mind that the content of this post is not intended as tax, accounting or legal advice. The information presented here is for informational and educational purposes only. Before engaging in any transaction, be sure to discuss these matters with a trained, licensed professional.