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Here's the truth: excellent therapists can be terrible at managing their money.

They spend income in the wrong places, don't understand how business expenses work, and feel incredibly frustrated when they have a huge, looming tax bill each year.

That's why this article felt so important to write! Small business owners must prioritize their financial health if they want to make a good living and avoid the terrible impact of burnout.

I'd like to note that I am NOT a tax advisor. You should always, always, always consult with a qualified tax professional for any specific tax advice. What is and isn't tax-deductible can sometimes depend on how you use the service or item, and seeking professional guidance can undoubtedly save you money in the long run.

What Do Tax Deductions for Therapists Even Mean?

Tax deductions refer to offsetting the business expenses you pay to maintain your own practice. It's a misconception that a tax deduction just means the expense is now free. It's not. A deduction simply reduces the total taxable income you owe as part of your federal and state tax requirements.

How Do You Track Your Tax Deductions?

If you aren't doing so already, you must keep your personal and business finances separate. This is non-negotiable. If you GET ANYTHING from this article, that piece of advice is it.

Find Your Bookkeeping and Tax Platform

I use Quickbooks, and I've used them for every business I've ever owned! My accountant also recommends them, and I trust her wholeheartedly.

Ideally, your tax software should help you track income and expenses, manage cash flow, and run comprehensive reports. I like Quickbooks because they also offer invoicing services, tracking mileage (which I'll discuss more below), and managing 1099 contractors.

Get A Business Credit Card and Business Checking/Savings Account

Yes, you NEED these.

Your card will help track all business usage, and the paper trail of expenses is essential in the event of an audit.

I use Chase business cards for everything. They offer fantastic sign-up bonuses, which mean you earn free money simply for making a minimum spend when first receiving the card. 

If you have separate businesses, you should have separate cards for each business.

I also use Chase for their business checking and savings accounts. I don't want a bank with high account fees, and Chase waives everything if you complete a few basic maintenance activities.

25 Therapist Tax Deductions and Qualified Business Expenses

All right, let's get into the good stuff. You work hard for your money, so your private practice expenses need to work for you! Otherwise, you're leaving money on the table (and adding increased stress) come tax time.

So, let's get into some of the most common self-employed therapist tax deductions!

Startup Business Costs

What if your business isn't profitable yet? What if you've just started setting up your private practice? 

Not a problem! The IRS states that owners should treat "all eligible costs incurred before beginning to operate the business as capital expenditures that are part of their basis in the business."

Your startup costs may include office furniture, initial office rent payments, software services (like your EMR or other practice management software, and marketing materials). 

When in doubt, if it's going to your business entity, it's worth tracking! If you have a physical office location, don't overlook the costs of artwork, blankets, tissue boxes, etc. You probably already know office rent is deductible, but all those additional expenses to keep clients coming to your space also count.

Rent and Mortgage Expenses 

With so many private practice owners shifting to telehealth, it's worth noting that deducting home office expenses can seriously offset your tax burden.

However, this tax write-off can be a bit confusing, and that's why I want to emphasize the importance of working with a trusted accountant!

First things first:

1. You can't write off your home office if you are an employee of a company. So, if you receive W2 income, you are not eligible for tax-deductible expenses if you work from home.

2. You need to exclusively use your space for your business. So, no, if you're working out of your kitchen table, that doesn't count!

3. Your office needs to be the primary place of business. But if you conduct business outside the home (while also using the home to conduct business), you may still qualify. This is why things get confusing!

With the simplified option, the IRS has set a rate of $5/square foot with a max of 300 square feet. When using the regular, standard method, home office deductions are based on a fixed percentage of the home devoted to business use.

Other Home Office Expenses 

To make things even juicier, you may be eligible to write off other expenses when using the regular, standard method.

This may include your mortgage interest, rent, HOA fees, property taxes, housekeeping, general upkeep expenses, Internet, and phone or electric bill.

When in doubt, track it and touch base with your accountant. As for me, I like to track every cost that goes into owning and maintaining our home. Not everything will be eligible, but your accountant will be able to distinguish what is and isn't.

Health Insurance

The big one!

You can deduct health insurance premiums for you, your spouse, and dependents as a qualified business expense.

However, private practice therapists cannot deduct them if you have any other employer-based health insurance options. In other words, if you can get health insurance through your spouse or another job, you won't be able to take this tax deduction.

Books and Training Materials

If you're like most therapists, you buy TONS of books, don't you?

As long as these books help you enhance your craft and run your private practice, they're probably considered eligible business-related expenses. This applies to audiobooks as well!

Furthermore, any training materials (like specific courses or workshops) also count as appropriate tax deductions.

Business Meals

You can typically deduct business meals when the meal is purposeful towards the business. The expenses cannot be "lavish or extravagant."

The IRS has recently put out an enhanced business meal deduction for 2021 and 2022. You can deduct the total cost of money spent on restaurant expenses. As always, save your receipts!

PS: You cannot just write off the Starbucks you buy to tackle your day with clients! To qualify, such meals need to be with other professionals and devoted to actual business purposes.

Vehicle Use and Transportation Expenses

Mileage, lease payments, and even general upkeep may be deductible if you are committing to your place of business.

Standard mileage rate: The IRS has set the standard mileage rate at 58.5 cents per mile. This adds up! Again, I recommend using a streamlined approach like Quickbooks to track your mileage.

Actual expense method: With this approach, you will calculate the total costs of maintaining and operating your car (gas, license, registration, maintenance). You'll multiply this total cost by the % of miles driven for actual business use.

If you're an independent contractor, make sure you track this expense. If you use your car and drive between multiple locations, you may be qualified to take this valuable deduction. And of all the tax write-offs therapists overlook, this is a significant one!

Business Registration

Any fees related to registering your business entity are typically eligible for a deduction.

This typically refers to fees related to LLC or S-Corp formation. It may also refer to any yearly tax costs associated with running your own therapy business.

Continuing Education

Found an awesome CE course? CEUs- and any continuing education expenses- count towards eligible business deductions.

Furthermore, qualified trainings and workshops (even if they don't necessarily accurate CEs) should also be appropriate as actual expenses for your business.

Membership and License Fees

Joining a national or local professional organization? These legal and professional fees meet the criteria for an appropriate tax deduction as well!

And we all have to renew our licenses, don't we? That expense is tax-deductible.

Credit Card and Bank Fees

As I mentioned, you absolutely need to keep your personal expenses separate from your business entity. With that, you can typically deduct all associated fees: overdraft fees, credit card processing fees, balance transfers, annual fees, buying checks, etc.

Depreciation Expenses

Depreciation refers to how "big purchases" lose some of their value over time. The IRS allows you to take this deduction if the single purchase is over $2500. This may include furniture or a piece of expensive equipment (like a laptop).

However, these assets are tangible and fixed- so you can't depreciate an online course that costs you $5000.

To fully qualify for depreciation expenses, the item must belong to you (with you being the owner), be used for business purposes, and have a useful purpose for at least one year.

There are several ways a therapist can manage depreciation expenses. Talk to your tax professional to determine the best option for your needs.

Travel Expenses

Need to travel outside of your residential city for at least one day for business-related purposes? If so, you're leaving what the IRS considers your tax home. Therefore, all those travel expenses and associated professional fees qualify as tax deductions.

This list gets extensive (so consult with tax professionals first), but it usually includes costs associated with lodging and accommodations, flights, rental cars, or other modes of transportation, baggage fees, meals, actual business expenses, and tips paid for the related services. 

Keep in mind that business must be the primary purpose of the travel. So, no, you can't write off a 2-week tropical vacation if you're only speaking at a conference for 1 hour on one of those days. The majority of your travel activity needs to coincide with your work.

Finally, while it's great to bring your partner or kids along for the ride, you cannot deduct their travel expenses.

Your Phone

Even if you use your phone for both personal and business purposes, you may be eligible to write off the percentage that you use for your business. This includes your monthly plan and any costs associated with operating and maintaining your phone.

If you have a dedicated phone SOLELY for your business, it's completely tax-deductible.

Malpractice Insurance

You do carry malpractice insurance, right?

That's a significant private practice expense, and it's also tax-deductible.

Online Directories

If you pay to use online directories like Psychology Today, Good Therapy, or Therapy Den, those professional organizations count towards eligible expenses.

Website Creation and Maintenance

A website is paramount for your private practice.

Any associated website costs (design, domain, hosting) can be written off. You should also track all spending for any hired services you use, such as content writing, SEO, graphic design, or web design. If you paid for professional headshots (and you should!), that expense also counts.

Supervision/Consultation

In most cases, paying for supervision or consultation qualifies as professional fees needed to maintain your business. It's a good idea to talk to your accountant to track those fees and determine whether those professionals need to be issued a 1099.

But as a general rule of thumb, if you've hired any specified service trade contractor to help your business, their fees should be deductible.

Do Personal Mental Health Therapy Services Count?

Maybe. Like many things in therapy, it depends. 

Any money spent on personal sessions may count as a deduction. I can't say for sure, and even accountants disagree on whether this truly counts, so be sure to double-check. My accountants, for reference, have never permitted me to take this deduction.

The IRS states that qualified medical expenses can be deductible if they are primarily meant to alleviate a physical or mental disability. You can deduct such expenses if they exceed 7.5% of your adjusted gross income.

Some accountants argue that psychotherapy is a legitimate expense for therapists because it's essential for the work they provide. Others find the tax laws on this a bit murkier. As I've said several times in this article, track the expenses and consult with a professional!

What If I'm an Independent Contractor?

Everything from gas mileage to membership fees to credit card processing fees probably applies to you!

As an independent contractor, you are not considered an employee, which means you're typically responsible for paying taxes on any income you earn. That's why tracking is still crucial for optimizing your earnings and mitigating stress during tax season.

Typically, you are also eligible to take the same tax deductions as any private practice therapist. If you're responsible for paying for something out of pocket (that goes towards your business), it's generally deductible.

What If My Tax Return Isn't Optimal?

It happens! Regardless of your circumstances, any private practice therapist should expect to devote a significant chunk of their earnings towards taxes.

You can improve the situation with your tax return in the future by working with an accountant, paying quarterly taxes, and automatically setting money aside as you earn it.

Furthermore, you should be mindful of various state laws when it comes to income tax and other tax deductions, as these may apply.

Final Thoughts On Optimizing Tax Season

If you're a private practice owner or independent contractor, you are responsible for managing your qualified business income. With that, you're also liable for acting in accordance with tax law.

Taxes don't need to be a big, scary thing! They don't need to have this massive impact on your mental health. Keep doing your due diligence, track your expenses and income, and consider outsourcing whenever possible!