Tax deductions for therapists and private practitioners

Are you aware of the latest tax deductions for therapists, aka “tax write-offs,” you may qualify for?

Even if you’ve already done the best bookkeeping for your private practice throughout the year, preparing your statements, receipts, and other various paperwork for tax season can feel formidable.

Are you overlooking some of the lesser-known tax write-offs for therapists?

Read on for helpful tips and a list of tax deductions for therapists and clinicians in private practice. And—keep in mind—you may be able to deduct your therapy practice software on your taxes.

What are tax deductions for therapists?

When you use a deduction in filing your tax return, you are essentially writing off costs that you already paid toward your private practice—for example, renting and decorating your therapy office.

Through using a “tax write-off” you are able to subtract these costs and expenses from your income for the year, and then you are taxed on the remainder of the income, i.e., a lesser number.

Tax deductions decrease the tax bill you need to pay, because you’re showing the Internal Revenue Service (IRS) that you already spent this money on your business during the previous year.

Preparation is essential

The best way to make sure you maximize the tax deductions for therapists is to plan ahead. 

Throughout the year, prioritize paying your quarterly taxes. If you’re worried you’ll forget, set four alerts in your calendar for the year ahead right now that will alert you two weeks before the filing dates. 

Better yet, make an administrative appointment in your schedule for those days, so you have time to pay the quarterly taxes immediately after the alarm goes off.

Close to the end of the year, touch base with your accountant or tax professional. At this point, you’ll have a clearer picture of your expected income for the year. 

Your tax advisor can use this information—along with many other factors—to help you determine how much you should spend before the year ends. 

Yes, you read that correctly. 

Some expenses will help you save money if you incur them before the year is over.

However, don’t rush into charging up your business credit card just yet. 

Your accountant or tax professional needs to be the person to help guide you through this decision. 

If they give you the go-ahead, consider hiring someone to bring your website back to life or book those conference tickets or sign up for that training you’ve been putting off.

Tax deductions for mental health clinicians in private practice

When you run your own private practice, it’s essential to know which of your expenses are tax-deductible so you can include them as “write-offs” and save money on your taxes. 

Keeping separate business and personal bank accounts, as well as a separate business credit card, can help you to keep track of these expenses.

Here are some common tax deductions for therapists and private practitioners to keep in mind:

Qualified business income (QBI) deduction for business owners

Most solo private practice therapists are eligible to deduct 20% of qualified business income based on the QBI deduction made available in the Tax Cuts and Jobs Act as of December 2017. 

The QBI deduction reduces the taxable income of partners, sole proprietors, and other business owners.

This financial tax break is reserved for “pass-through” businesses. Pass-through businesses are defined as legal business entities that pass all income on to the owners or investors of the business. Sole proprietorships, partnerships, and S-corporations are all pass-through businesses.

And, while it’s true that health care professions are designated by the IRS as specified service trades or businesses (SSTBs)—typically ineligible for QBI deductions—certain healthcare professionals (i.e., those who own pass-through businesses that meet QBI income limits) can still qualify for the tax cut.

Finally, if your practice pays you a salary based on a W2, that income is not considered qualified business income (QBI).

Although the 20% QBI deduction rate has remained consistent over the years, the income limits to qualify for the deduction have increased every year since the tax cut was enacted, in 2017.

More changes are expected in 2025, as the Tax Cut and Jobs Act is set to expire.

Here are the QBI deductions for 2023, 2024, and what to expect in 2025:

2023

To qualify for QBI deductions in 2023, your income needed to be less than or equal to $182,100 for single filers, and $364,200 for joint filers.

QBI deductions disappears altogether for health professionals who are considered high earners. In 2023, those with a total taxable income of $220,050 or more (single filing) and $440,100 or more (joint filing) were considered high earners, and thus precluded from receiving QBI deductions.

2024

These limits have increased in 2024, accounting for inflation and other economic factors. When filing taxes in 2024, as long as your total taxable income is at or below $191,950 for single filers and $383,900 for joint filers, the specified service trade or business (SSTB) classification isn’t applicable and you can use the 20% QBI deduction.

In 2024, those with a total taxable income of $483,900 for joint filers and $241,950 for other filers are considered high earners and are ineligible for the QBI deduction.

2025

In 2025, the Tax Cut and Jobs Act, and the corresponding QBI deduction, is set to expire, unless congress enacts an extension. 

President Joe Biden has promised to extend the tax cut for small businesses, but plans on decreasing limits to exclude higher earning businesses and corporations. However, President-elect Donald Trump intends to reinstate and renew his previously enacted deductions.

Therapists’ tax deductions for private practice startup costs

According to the IRS, business 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.”

If you have a physical office, don’t overlook the costs of office decor items, including artwork, plants, pillows, paint for the walls, etc. 

Your practice startup costs may include:

• Office furniture
• Initial office rent payments
• Software fees (including your SimplePractice practice management software)
• Marketing materials and costs

1. SimplePractice practice management software costs

SimplePractice’s practice management system is an all-in-one solution that makes running a private practice easy for clinicians. Private practitioners can use SimplePractice to streamline all booking, billing, and EHR functions.

Thankfully, the cost of SimplePractice EHR software for therapists is fully tax deductible.

You may enter the SimplePractice EHR as 27a “Other Expenses” on form 1040 Schedule C. Then, in Part V, under “Other Expenses,” create your own description and enter the amount and total on line 48.

2. Home office deduction

Do you see clients out of an office on your home property? If the answer to that question is yes, you may be eligible for a home office deduction. 

According to the IRS, the space must be the principal place of operations that gets regular and exclusive use for business.

3. Health insurance

You can deduct your health insurance premiums. Essentially the health insurance costs for you, your spouse, and dependents can be used as qualified business expenses for your practice.

Note: If you are running your private practice on the side, and you have another employer-based health insurance option, you won’t be able to take this deduction on your taxes. So, if you can get health insurance through your spouse or another job, this one is a no-go. 

4. Professional dues

If you’re a member of the American Psychological Association (APA) or other professional organizations, you can deduct the dues you pay on your business taxes.

5. Continuing education costs

Are you regularly attending conferences, workshops, or lectures? The cost of continuing your education to maintain licensure is generally deductible. (Your travel to these events may be included, too.)

The same goes for any scholarly journals, professional magazines, or other reference materials to which you subscribe.

Additional tax deductions for therapists

In addition to those deductions, you may qualify for some of these deductions, as well:

• Business and malpractice insurance
  
• Office equipment, supplies, postage, and furniture
• Business meals and entertainment
• Legal and professional fees
• Bank and merchant credit card fees
• Office rent and even utilities
• Marketing needs, such as advertising
• Computers and associated hardware and software
• Mileage for business purposes
• The depreciation of other assets.

Seek help from a professional

IRS instructions can be difficult to understand, and tax laws frequently change. It could be a good idea to hire a professional to guide you through the process, as accountants and certified tax professionals stay abreast of these changes. 

Just as you regularly attend counseling conferences to keep your license current and subscribe to psychology journals to read new research, accountants, and tax professionals also take measures to stay current in their field. Similarly to how your clients put their trust into you and your expertise, you might wish to put your trust into a professional during tax season.

Disclaimer: This article shouldn’t be regarded as financial or tax advice. We recommend you meet with an accountant or tax professional to help you make these decisions. 

How SimplePractice Streamlines Running Your Practice 

SimplePractice is HIPAA-compliant practice management software with booking, billing, and everything you need built into the platform.

If you’ve been considering switching to an EHR system, SimplePractice empowers you to run a fully paperless practice—so you get more time for the things that matter most to you.

Try SimplePractice free for 30 days. No credit card required.

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