For most non-tax professionals, filing your taxes can be confusing and stressful. As you launch your private practice, you’ll want to make sure you’re maximizing all the potential savings for your business by learning about the tax write-offs that are available to you.
Also known as tax deductions, write-offs are the expenses you incur for your business that offset your earnings. In simple terms, if your gross income was $100 for the year, and you spent $20 on your business, you can deduct that $20 off your taxable income – meaning you are then taxed as if you had earned $80 that year.
Read on to find out which expenses may quality as write-offs and how to keep yourself organized so that tax season is a breeze. The list below is not comprehensive and is not a replacement for a consultation with your tax advisor. Be sure to check in with a professional who can help interpret the tax code (which changes all the time!) and ensure you’re set up for success.
Office space and equipment
Whether it’s a home office or a traditional office space, your principal place of work – as well as your utilities there – qualify as a tax deduction. For home offices, you’ll need to calculate the percentage of your home that is used for business; you can then deduct that percentage of your rent or mortgage, electric bill, phone bill, etc.
You can also deduct the furniture and supplies used for your work, including computers and other hardware; booking and billing software (like Simple Practice); and any therapeutic toys, games, art supplies, and books you use in your practice. Processing fees via Square, Stripe, or another payment processor are tax deductible as well.
Education and professional fees
Continuing education expenses can also be deducted, and this can be a broad category of activities. Anything that improves or maintains your professional skills, and/or is necessary to maintain your license, falls under the umbrella of continuing education.
Common examples of continuing education include subscriptions to scholarly journals and magazines and attending professional conferences and workshops. Simple Practice’s blog suggests that your travel expenses to conferences may be deducted as well – but be sure to consult your tax professional before doing so, as this can vary.
Professional expenses are also a tax deduction, such as membership fees in a professional organization, your local chamber of commerce, and any public or civic organizations associated with your profession.
Marketing and networking
Don’t overlook the costs involved in building and maintaining your business! Marketing and advertising costs, such as digital ads, website and logo design, SEO tools, and business card printing can all be tax write-offs. The monthly fees you pay for directory listings, such as Psychology Today, also fall under this category.
Networking costs are an essential write-off for any therapist in private practice. This category includes business meals, such as networking coffees and lunches; promotional items, like branded pens, notepads, or the pandemic-popular hand sanitizer; and even your mileage when commuting to meetings or making outreach visits to doctors’ offices. For more details about how to calculate your mileage, visit Heard’s comprehensive post here.
Your business and malpractice insurance expenses can be deducted, as well as fees you pay to your accountant, bookkeeper, and/or tax advisor. (You know how we keep telling you to consult your tax professional? Don’t forget to deduct their fee after you do so!)
According to Heard, you may also be able to deduct the fees you pay for your own personal therapy throughout the year, although there is some debate about whether this is a deductible expense. Once again, your best bet is to check with your tax advisor to see if this might be an option for you.
As a therapist with a private practice, a SEP IRA may be the simplest retirement savings vehicle for you – and as a bonus, your contributions to it are tax deductible. Be sure to speak to your tax professional about each year’s contribution limit, and how you might want to structure your annual contributions to maximize your tax savings.
Now that you’re better versed in the tax deductions that may apply to your private practice, it’s time to get yourself and your business organized.
Keep things separate
It can be tempting not to do the initial legwork required to set up separate business accounts and credit cards, especially when you’re first starting out in private practice. But it’s essential to keep your personal and your business expenses fully separated so as not to get confused down the line as tax season looms. Was that lunch three months ago with a friend, or was it with a professional contact? If you have a business account and use that for all your professional expenses, you’ll know for sure that it’s a deductible expense.
Whenever you spend money on your business, save that receipt! Though you’re unlikely to be audited, you’ll want to make sure you have documentation of your deductions just to be on the safe side.
Keeping your receipts will also help you make sure you’re maximizing all your deductions as you review your expenses for the year. You might not remember that way back in January of last year, you refreshed your stock of art therapy supplies – but if you have the receipt in your files, you’ll be sure to remember to write off that expense.
Keeping your receipts doesn’t have to mean a shoebox stuffed full of paper anymore. Using a digital expense tracker and scanning in any paper receipts will make your life (and your tax preparer’s life) much easier!
Don’t wait till the last minute
Just like going for a dental check-up or getting your oil changed, it’s better to spend a little time upfront to maintain your financial records than to scramble at the last minute and potentially create a much bigger issue for yourself. Keeping your records organized throughout the year will help you maximize your savings potential – and minimize your stress – when April arrives.