Top Tax Deductions for Therapists & Private Practitioners
The top tax deductions for therapists can significantly reduce your tax liability as a private practitioner. Applying these deductions helps you maximize your profits, giving you more resources to reinvest in your practice.
Owning a private practice is a rewarding yet challenging endeavor that requires time, energy, and focus to grow. That's why many therapists partner with tax experts to ensure the best possible result come tax season.
Qualified Business Income (QBI) Deduction
The QBI deduction is one of the top ways to reduce taxable income for businesses with a “pass-through” structure like LLCs, S Corps, sole proprietorships, and partnerships. The QBI deduction allows most therapists to write off up to 20% of their income and pay income tax on what remains.
Therapists who earned less than $182,100 (for single filers) or $364,200 (filing jointly) in taxable income can claim QBI for 2023. Practices that earned more than these figures may be able to claim a partial deduction.
Advertising and Marketing
Getting the word out about your practice is one of the most important steps for a new business. The good news is that costs associated with marketing or advertising your therapy practice are tax deductible. You can claim a tax deduction for the following expenses:
Mail or print ads
Costs related to online advertising
Website design and maintenance
Professional headshots
Logo design
SEO tools, services, or consultations
Business cards
Monthly fees for directory listings in professional publications like Psychology Today
Accounting and Bookkeeping
Working with a tax professional is the best way to stay on top of your paperwork and avoid costly mistakes during tax season. That's why many private practitioners get help from professionals in bookkeeping for therapists. The costs of accounting and bookkeeping are fully tax-deductible and include a range of expenses like:
An accountant or bookkeeper: This could be on retainer or just for tax preparation.
A tax advisor
Accounting software like QuickBooks
Other legal and professional fees—for example, solicitors or consultants—are also deductible.
Vehicle Use
Your job as a therapist may take you on the road, especially if you offer home visits or sessions in different locations. If you use your vehicle for business purposes, you can deduct some of the costs of maintaining and fueling it.
An expert in tax planning can explain which vehicle costs are tax-deductible. Remember, your regular commute to work isn't tax deductible. Only journeys to places other than your office qualify for this expense. One example of a qualifying expense could be if you do contract work at a hospital or mental health facility.
There are two methods to calculate how much tax you're entitled to write off: the standard mileage rate and the actual expense method.
Standard Mileage Rate
Calculating the standard mileage rate involves taking the total number of miles you travel in the course of your work and multiplying it by the mileage rate set by the IRS for the tax year. For the 2024 tax year, that's 67 cents per mile.
The standard mileage rate method is a simpler way of calculating your tax deduction as it's a flat rate based on miles driven. It presumes (and therefore factors in) ongoing expenses like routine maintenance or repairs. The only vehicle-related costs you can deduct separately if you take the standard mileage rate are state and local personal property taxes on motor vehicles and non-commute-related parking fees and tolls.
Please note: To use the standard mileage rate, you must opt to use it in the first year you use your car for business purposes. In subsequent years, you can choose between the standard mileage rate and actual expenses.
Actual Expenses
The actual expense method is slightly more complex but may be more favorable for some therapists. Calculating your actual expenses requires you to work out how much of your total time on the road is dedicated to business. You then multiply this percentage by your total vehicle expenses for the year.
For example, let's take a therapist who drove a total of 5,000 miles last year. 2,000 of those miles were to give therapy sessions out of the office or to attend conferences. In this case, the therapist could deduct 40% of all of the vehicle expenses for the year.
Expenses include:
Fuel
Lease payments or depreciation on the vehicle
Oil and other fluids
Repairs
Tire replacement
Licenses and registration
Insurance
Membership Fees
As a therapist, you're likely a member of professional organizations like the American Counseling Association. If so, your membership fees are qualified business expenses. You can also deduct membership costs that you pay to the local chamber of commerce and public or civic organizations related to therapy or counseling.
Continuing Education
The theory and practice surrounding therapy are continually evolving. Most therapists recognize the importance of staying on top of new techniques or theories in the profession to offer the best possible service to their clients.
Costs incurred taking courses, workshops, or certification programs can be deducted if they meet at least one of the following two eligibility criteria:
The course allows you to improve upon or maintain the skills required for your position.
The course is mandatory in order to obtain a professional license to practice therapy.
Office Rent or Home Office Expenses
Many therapists own an office outside their homes to conduct therapy sessions with their clients. The rent you pay for your office is fully deductible. Other costs like utilities are also deductible.
If you work from home, either offering remote sessions or working with clients on-site, you can deduct a portion of your mortgage payments (or rent) and utilities via the home office deduction. You can qualify for this deduction if you fulfill these conditions:
You must have a place in your home that's dedicated to work. This could be a separate office or a portion of a room that's primarily used for work.
Your home must be used regularly for work. This means that you keep the same hours, for example for weekly appointments with clients. If you use a desk sporadically to catch up on paperwork, your home doesn't qualify as a home office.
A home office must be your number one place of business. Taking home paperwork after spending the whole day in the office doesn't qualify your home as an office space.
If your home qualifies as a home office, there are two ways to claim deductions for your expenses. Consult a tax professional to work out which offers a bigger tax write-off for you:
Home Office Regular Method
To calculate what you can claim on your tax return as a home office expense, you must:
Determine the square footage of your office space.
Work out the square footage of your entire home.
Divide your office’s square footage by your home's square footage to calculate the proportion of your home dedicated to the office.
The percentage you’ve calculated is the amount you can claim. For example, if your office takes up 10% of your home's space, you can deduct 10% of your mortgage interest payments (or rent) and utilities for the year.
Home Office Simplified Method
The simplified method allows you to deduct $5 for each square foot of your home used as office space. This is capped at a maximum of 300 feet.
Therapeutic Aids
You probably have a growing number of items you use with your clients to conduct sessions. Items or aids you use during your therapy or counseling sessions qualify as tax write-offs. These could include:
Therapeutic toys and games
Supplies or equipment for art therapy
Pressure vests or weighted blankets
Prompt cards
Instruments or CDs for music therapy
Therapeutic books
Booking and Billing Software
Many therapists use software to book client appointments. The subscription costs for therapy practice management software are tax-deductible. You can also claim expenses on software used for invoicing or providing receipts.
Billing software companies typically collect a percentage of your revenue when clients pay by credit card. These credit card processing fees are also tax-deductible.
Professional Liability, General Liability, and Health Insurance
There are several kinds of insurance that you can claim as deductions on your tax return.
Professional Liability Insurance
Professional liability insurance is generally considered an ordinary and necessary business expense for therapists. This insurance protects your practice against claims of negligence or malpractice while offering professional services. You can write off your professional liability insurance premiums on your tax return.
General Liability Insurance
General liability insurance protects your business against claims of bodily harm or property damage. You can claim the cost of general liability premiums on your tax return. Make sure you document all the payments you make toward any insurance policy as this information is crucial when filing your taxes.
Health Insurance
You may also be able to write off health insurance premiums for yourself as well as your spouse and dependents.
Standard Deductions, Itemized Deductions, and Business Deductions
When you file your personal income tax return, you will choose between claiming the standard deduction or itemizing your deductions. A tax professional can guide you on which option is most favorable for you and keep you up to date with any changes. For example, a rise in the standard deduction is a significant tax change for 2024.
Itemized deductions include personal expenses related to your person, not your business. These include real estate or personal property taxes, and medical or dental fees, among others. Itemized deductions are reported on Schedule A. The alternative to itemizing your deductions is claiming the standard deduction. This is a flat rate that varies from year to year.
If your therapy business is a pass-through entity—for example, a sole proprietorship or an LLC filing as a sole proprietorship—your personal and business tax returns are one and the same. You will use Schedule C to report business expenses.
Many self-employed individuals believe that they can’t claim the standard deduction and business expenses at the same time. This is a misconception. Whether you itemize your deductions or claim the standard deduction, you are still able to deduct your business expenses on Schedule C.
Grow Your Therapy Practice with Expert Tax Advice
Knowing all of the tax deductions that are available to you may seem like a tall order. The good news is that working with a tax professional makes it much easier to keep every cent to which you're entitled.
A tax advisor can help you optimize your tax bill and get you organized and ready to pay your quarterly taxes correctly and punctually. This saves you time, headaches, and potential penalties and allows you to put more of your hard-earned money back into your business.
