Tax season is creeping up on us again. (Isn't it always?) As a private practice therapist, it may feel like your finances are looming over your head. Will you manage to file your taxes accurately? Where will you find the time amidst a full caseload of clients? And—perhaps the most stressful question—how much will you owe the IRS?
Fortunately, along with private practice taxes comes the art of tax expenses and write offs. Though it may sound emotionally and financially daunting at first, getting a firm grasp on tax expenses can be quite advantageous and save you hundreds or thousands of dollars for your business.
What are tax expenses?
When you run your own small business, such as a therapy practice, you are able to deduct or “write off” business-related expenses from your income to account for the costs that you typically spend to run your business. You are then taxed on the remainder as your typical income tax.
To keep things simple, you are saying to the IRS, “I made x amount of money this year, but I already spent y amount to run and grow my business.” X - Y = the amount you’ll pay income tax on.
Common Tax Expenses for Therapists
Here are some common tax expenses to be aware of, especially for those just starting out in private practice:
Advertising and Marketing
Any costs associated with marketing your business. For therapists, a lot of the time this can look like the costs for your website, whether that be the domain hosting, the website design, or any graphic designers you outsource to help promote you. Advertising costs can also include money you spend on tangible products, such as print advertisements or business cards.
When you purchase a meal for business-related purposes, you can write this off as a tax expense. Typically, this would be for a work reason, such as a meeting with a co-worker or a consultant, or a lunch with a client. Late night Postmates when you’re off the clock don’t count!
Pesky bank fees can definitely add up when you are running your own business and operating separate bank accounts for your business checking and savings. Account fees, interest, and credit card processing fees can all be tax deductible.
Vehicle Use For Business
Granted you are using your car for business-related use outside of your regular commute, your mileage may be deductible, along with general upkeep expenses on your car. In order to actually be able to use this expense, you will need to keep close track of how many miles you are driving per year that specifically pertain to business use. These miles must be out of the standard commute between your home and work, if you are a commuter.
You can use two specific methods here to calculate what from your vehicle use is tax deductible:
Standard mileage rate –– First, multiply the amount of miles you’ve driven for business purposes only by the IRS’ standard mileage rate. Note: the mileage rate adjusts every year to keep up with inflation.
- For 2023 the mileage rate is ¢65.5 per mile.
- For 2024 the mileage rate is ¢67 per mile.
- Actual expense –– You’ll first need to determine the actual full cost to operate your vehicle, including license, registration, gas, oil, and upkeep. You’ll then multiply this cost by the percentage of miles driven for business use on your car.
If you belong to any professional organizations, such as the APA, these expenses can also be deductible.
Many therapists choose to continue their education, attending courses, workshops and conferences to further improve their skills and learn how to run their own businesses. As long as these endeavors apply to your practice, the costs can be written off.
Office Expenses and Supplies
These can include pens, scissors, staplers, printer ink, postage, small furniture pieces and cleaning supplies––along with anything that helps you stay organized as a therapist.
Any practice management software, such as TherapyNotes or SimplePractice, is deductible within this category, as it helps you to run your business smoothly and efficiently. Additionally, any other software you use to run your business, along with business software such as Google Drive, Apple storage, or Gusto, can also be written off.
Office Rent and Utilities
If you run your private practice from an office, your rent and utilities (such as a phone or electric bill) can often be written off. If you’re working out of your home or sharing utilities for business and personal use, this can get tricky -- you’ll only be able to deduct for your percentage of business usage.
Business registration and license fees. This is particularly important if you’re new to private practice this year; you’ll be able to write off a lot of the startup business costs. Renewal of your license can also be written off.
Expenses from travel can add up quickly. This includes anything used for business purposes, and typically requires that you are away from your residential city for at least 24 hours. Costs eligible for expense include mileage, meals and parking.
Are you seeing your own therapist? Money spent on personal sessions can often be deducted on your tax return as it helps you to improve your mental health grow in your own profession. Many accountants have differing viewpoints on whether this counts as a write-off, so be sure to check with your financial advisor here.
This write off can often be one of the more difficult ones to understand, but essentially it entails any larger purchases over $2,500. (For therapists, a common write-off in this category is office furniture.) You can choose to deduct these purchases from your taxes in the first year after purchase, or in small increments over the years the item is used.
Maximizing Tax Expenses For Your Practice
The list goes on, with additional write-offs available for costs such as insurance, legal or professional fees, moving expenses, and salary and benefits for any private practice owners who have employees. Tax expenses can definitely come in handy, and the key to maximize them (and your sanity) is to keep all your business finances separate from your personal expenses and well-organized. This way, when the end of the year rolls around, you’ll have all of your business expenses in one place.
While the above list is a general overview of some helpful write offs, it’s important to remember that your expenses can vary based on your business entity and personal situation. At Heard, we recommend working directly with a financial advisor to file your taxes, and offer free consultations to help make tax season easier and improve the financial health of your private practice.
Heard is a bookkeeping and tax platform for therapists, intended to ease the financial burdens of mental health therapy services and track the financial health of your practice. Schedule your first consultation at joinheard.com.