Whether you're a psychologist, counselor, or social worker, seeing clients can take an emotional toll. But tax time doesn't have to drain you. As a self-employed therapist, you can claim tax deductions to reduce your taxable income and keep more money in your pocket.
Having a separate business account like Found makes tracking expenses and quarterly estimated taxes a breeze, so you're ready to go come tax season.
Here are the top 10 tax deductions for therapists.
As a therapist, your office is more than just a workspace; it's a sanctuary for healing and growth. Luckily, the IRS lets you usually deduct the cost of office rent and utilities, which is likely a large part of your overhead costs.
If you rent a physical office space exclusively for your practice, the deduction is pretty straightforward. You can typically deduct the cost of rent and utilities like electricity, gas, water, trash pickup, and internet services.
Instead of traditional office space, many therapists opt for a home office instead. To qualify for a home office deduction, the space must be your primary place of business and used exclusively for professional purposes. This means the area shouldn't double as a personal space, like a family den.
Calculating your deduction involves determining the percentage of your home used for business and applying that to related home expenses. For instance, if your home office occupies 10% of your home's total square feet, you can likely deduct 10% of your rent or mortgage, as well as utility bills.
If you use specific types of aids during your therapy sessions, these are also deductible. Keep receipts for proof of purchase in case of an audit.
Therapeutic supplies. This can range from workbooks, diaries, and therapeutic games to specialized equipment like sand trays, fidget spinners, or weighted blankets. These items are integral to providing effective therapy and are deductible.
Business software. The modern therapist’s office extends beyond traditional supplies. It includes digital tools essential for client management and session delivery. This means you can deduct the cost of practice management software like Alma, teletherapy platforms, electronic health records, and other digital services.
Office supplies. Typically, office furnishings, computers, printers, and stationery are equally deductible. Whether it's a new ergonomic chair or the latest software subscription, if it's used in your practice, it's likely a deductible expense.
The IRS allows deductions for various educational expenses, provided they align with your current professional role. These work-related educational expenses can include:
Membership fees for therapy-related organizations and associations
Costs for attending workshops, conferences, and seminars
Supervision fees, especially for those in the early stages of their practice
Subscription costs for professional journals and relevant publications (like Psychology Today)
Fees for renewing professional licenses and certifications
The key is that these expenses must maintain or improve your skills as a therapist or are necessary for your licensure. The IRS doesn’t allow deductions for education that meets the minimum requirements of your current profession. For example, if earning your master's degree is a prerequisite for your practice as a therapist, those educational costs aren’t deductible.
Running a successful therapy practice involves more than just client sessions. It often requires expert guidance in areas outside your therapeutic expertise. Fortunately, you can typically deduct expenses like these:
Accounting and bookkeeping. Deduct business bank fees for platforms like Found Plus, as well as monthly fees for accountants, bookkeepers, tax professionals, and other financial services.
Legal and consulting fees. Whether it's for drafting contracts, handling legal disputes, or receiving business advice, these services directly support your practice.
Other contract work. If you hire a 1099 independent contractor to assist with specific tasks related to your practice, their fees are also deductible. This could include hiring an administrative assistant, a marketing expert for a campaign, a web designer for your website, or a tech specialist for IT support.
Insurance is a vital component of a well-managed therapy practice. The good news is that you can generally deduct premiums paid for various insurance policies.
Types of deductible insurance include:
Professional liability insurance. Also known as malpractice insurance, this is crucial for any therapist. It protects you from claims alleging negligence or harm in your professional services.
General business insurance. This includes coverage for your office space and equipment. Whether it's protection against theft, fire, or other damages, these insurance costs are deductible.
Health insurance. You can generally deduct self-employed health insurance premiums for you, your spouse, and your dependents. But if you're eligible to participate in a plan through your spouse's employment, this deduction doesn’t apply.
Quick Tip: The health insurance deduction can be a bit nuanced. It's available even if you don't itemize deductions, but it's limited to the net profit of your practice. So you can't use it to create a loss on your tax return. If you provide group health insurance to employees, those premiums are deductible as well.
To qualify as a business trip, the primary purpose of your travel must be for professional reasons. This means the main reason for your travel should be attending a conference, workshop or meeting clients.
Distance also matters. Generally, travel must take you away from your tax home (the city or area where your practice is located) and be longer than an ordinary workday. It's okay to enjoy some leisure time on your trip, but the primary focus must remain on business activities.
According to the IRS, you can deduct these business travel expenses:
Transportation costs. This includes airfare, train tickets, or bus fares to and from the business destination.
Lodging expenses. Think hotel or other accommodation costs during your business stay.
Meal expenses. You can generally deduct 50% of your business meal costs while traveling.
Other travel expenses. This can include cab fares, car rentals, tips and other incidental expenses incurred during the business portion of your trip.
You can’t deduct daily commutes to your primary workplace from your taxes. But you can potentially deduct travel to locations other than your regular office—like visiting a client at a different site or driving to speak on a panel.
You have two options for calculating your deductible car expenses:
Standard mileage rate. This method involves multiplying the total miles driven for business by the IRS's standard mileage rate for the tax year. For example, in 2023, the rate was $0.65.5 per mile for self-employed business owners.
Actual expenses. This method requires calculating the full operational cost of your vehicle, including expenses like fuel, maintenance, insurance and loan or lease payments. Then, you determine the percentage of vehicle use for business and apply this percentage to the total cost of operating your vehicle.
Whichever method you choose, maintain detailed logs of your business miles—noting the date, purpose, and distance of each trip. Keep receipts for all vehicle-related expenses if you're using the actual expenses method.
If you’re using Found, you can choose a deduction method and keep a log of the business miles you drive for easy tracking—for free. No more toggling between costly apps.
You can also deduct many marketing and advertising expenses for your therapy practice as long as they’re “ordinary” and “necessary” for your industry. This includes:
Online and print ads
SEO and online marketing tools
When you first launch a new practice, you incur a whole slew of expenses before you even open your doors to clients. This could be things like office furniture, initial rent, billing software, marketing materials, decor, and other expenses.
Luckily, you can deduct up to $5,000 of startup costs in the year your practice starts operating. You must amortize any startup costs exceeding $5,000, meaning you can deduct them in equal parts over the next 15 years. The $5,000 deduction begins to phase out when your total startup costs exceed $50,000.
The qualified business income (QBI) deduction is a tax break introduced in the Tax Cuts and Jobs Act of 2017. It lets you deduct up to 20% of your qualified business income from your taxable income.
This deduction is taken from your net business profit, which is the income you earn from your practice minus any business expenses. Most therapists operating as sole proprietors, partnerships, S corporations, and LLCs are eligible for the QBI deduction.
The full QBI deduction is available to therapists with taxable incomes below $170,050 for single filers or $340,100 for joint filers (as of 2023 tax changes). Above these thresholds, the deduction may be phased out or limited based on your type of business and wage levels.
Navigating tax season as a self-employed therapist can be tricky when personal and business finances are involved. But taking time to understand the differences between standard and itemized deductions, as well as identifying your eligible business expenses, can help you maximize your savings.
Here’s a quick overview:
Standard deduction. The standard deduction is a fixed amount set by the IRS that is simpler to claim. Rather than keeping track of individual personal deductions (like mortgage interest and student loan interest), you just take the standard deduction and leave it at that.
Itemized deductions. Itemized deductions allow you to deduct specific personal expenses in detail—like mortgage interest, state and local taxes, real estate and property taxes, and charitable donations.
The decision to itemize or take the standard deduction hinges on which option gives you the higher deduction. If your itemized deductions exceed the standard deduction amount, itemizing is the best thing to do as it can save you more on taxes.
Business expenses. These are costs directly related to running your therapy practice, like office rent, supplies, and professional development. Regardless of whether you take the standard deduction or itemize, you can claim these business expenses on Schedule C if you’re a sole proprietorship or an LLC.
You have a few tax filing options to help you determine which deduction is higher. If you’re planning to use tax prep software this tax season, you can save up to an additional 20% off when you file with TurboTax. Restrictions may apply, see TurboTax terms.
There’s a lot that goes into tracking your tax deductions. If you want to take the easy way out, let Found do it for you. With features like automatic expense categorization, receipt capture, and invoicing, Found helps you maintain organized financial records effortlessly. It even estimates your tax liability throughout the year, so you can focus more on your practice and less on manual financial tracking. Download the Found app for free.
Some expenses related to a therapy dog may be deductible for a therapist, such as costs for transportation, therapy dog training, adoption fees, and beds and bowls used at work locations. However, regular costs like vet bills, food, and grooming are likely not deductible since they overlap with personal pet care. If you’re considering bringing a therapy dog into your practice, it’s best to consult an accountant to determine which therapy dog expenses can be deducted based on your situation.
It depends. If seeing your own therapist is necessary for your professional development, it could be argued that it’s a business expense. However, this is a more nuanced area and might require speaking with a CPA first. Some argue that if you’re using therapy to help balance the mental and emotional toll your work takes on you as a therapist, it could be okay. Others argue that it’s usually more of a personal medical expense.
Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax advice. Found partners with TurboTax, and is not a filing service. Restrictions may apply, see TurboTax terms.
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