Published on September 23, 2024 by Zencare Team.
Tax season wouldn’t be complete without exasperation, confusion, and a light touch of panic, would it? Filing taxes as a private practice therapist means taking special care to ensure that you’re filling out the correct forms and claiming as many tax deductions for therapists as you can. This is often easier said than done, as the IRS doesn’t make it straightforward when it comes to filing taxes as a therapist.
To help this tax season, we’ve come up with six tips for filing taxes as a therapist.
1. Determine how you’re filing
The first tip is to determine how you’re filing your taxes, as taxes for private practice therapists can look different depending on your situation. How you file your taxes will depend on whether you’re self-employed or if you own your private practice, if your private practice employs other staff, or if you’re a contractor at someone else’s private practice or other clinical setting.
For therapists who have set up their private practice as a small business, you’ll need to file taxes for both your business and yourself as an individual. Your taxes may be more complicated because you’ll have to file two tax returns that vary greatly from one another. This is especially true if you employ other people in your business, including other therapists or administrative support — and how you pay those staff members and whether you withhold taxes from their paychecks each pay period.
Therapists who receive income as contractors tend to be those who work for a private practice or therapy group owned by someone else. These contractors tend to get paid an hourly rate (or by session rate), which is paid to them without taxes withheld. Contractors then receive a 1099 form at the end of the year which states their overall income. It’s up to these contractors to ensure they pay taxes on this income, and they only need to complete an individual tax return (and not a business tax return).
Determining how you’re going to file gives you a foundation for the work on your taxes, as well as a clear checklist to get through as you complete your taxes.
2. Figure out which deductions could apply to you
One of the most important parts of completing a tax return as a therapist is to figure out which deductions apply to you and your private practice. By making deductions, you’ll decrease the taxes you owe the IRS, in turn leaving your practice with more money to put towards marketing, regular expenses, or staff salaries.
The IRS organizes expenses by type, and generally these types overlap, which can make it confusing for therapists as they list out where they’ve spent money and to claim the appropriate deductions for their private practice.
If your private practice has incurred any of these costs over the past year, you’re likely eligible to claim them as deductions:
- Bank fees. If your private practice uses a bank account that charges a regular fee, you can claim that fee as a deduction. This includes the fees on your business credit cards.
- Car mileage. If you do community outreach as part of your private practice, the mileage on your car may be eligible as a deduction.
- Continuing education. Continuing education counts towards professional costs, and because all therapists are required to complete continuing education to maintain their professional credentials, the fees for either trainings or conferences are deductible.
- Disposable or consumable office supplies. These office supplies are not meant to be used for over one year, so things like hand soap in the bathroom or tissue boxes for the waiting room count towards your deductibles. Office supplies like printer ink, postage, and magazine subscriptions also fall under this type.
- Home office. If your private practice is fully remote, its costs are deductible from your taxes. However, there are strict eligibility criteria to follow, including that this space needs to be solely used for your work and that your home office is your primary place of business.
- Licensure and membership fees. All therapists must maintain their licensure, and often these credentials must come through the state in which they practice or a professional body. Licensure and membership fees are eligible to be tax deductions, as they are also professional costs.
- Loan interest. Many therapists must take out business loans to support their private practice when they first get started, which come with interest payments. For most small businesses, loan interest can be deducted from their taxes.
- Marketing. Many therapists in private practice pay for marketing services or tools, and these costs can count towards a tax deductible. This includes therapist directory services, social media marketing tools, or search engine ads. It can also include fliers, brochures, or website enhancements.
- Technology and office furniture. When setting up your private practice, you may make big purchases like couches or workstations. These costs, including computers, are eligible to be deducted either as a lump sum or a portion over a certain length of time (across multiple tax returns).
3. Get support if you need it
Already confused? Our next tip is to get support completing your tax return if you need it, especially if you’ve only recently started your private practice. Master’s and doctorate programs seldom teach therapists how to run small businesses, so the information they have to successfully complete their tax returns relies solely on learning done on the job.
Certified tax accountants or other tax professionals have in-depth knowledge about how to complete tax returns for small businesses, and some even specialize in working with therapy private practices. Your best shot at completing a tax return for your private practice correctly and with the appropriate tax deductions for therapists included is to have a professional help you, meaning that you can focus your attention back on your clients and your practice.
Because of the sensitivity of the information that goes into tax returns, it’s important to ensure that the tax professional you’re in contact with is certified to avoid low quality work — or worse, a scam. You can research the accountant’s background and ask for proof of their professional qualifications to avoid falling into this issue.
4. Know your deadlines
While it’s tempting to procrastinate when it comes to filing taxes, knowing your deadlines means that you’ll avoid penalty fees for late filing or payments. The federal tax return deadline is by April 15th each year; however, you can request an extension of six months for special circumstances, which takes you to October 15th. That said, even if you get an extension, you’ll still be responsible for any late fees if you owe the IRS taxes based on the original deadline of April 15th.
If your private practice requires the payment of estimated taxes — that is, if your paychecks don’t withhold any tax throughout the year — then you’ll need to make quarterly payments on April 15th, June 15th, September 15th, and January 15th the following year. If you don’t make these payments, the IRS may charge you a penalty fee.
5. Collect all the forms you need
Therapy practices are commonly set up as C corporations, S corporations, sole proprietorships, limited liability companies (LLCs), or partnerships. Depending on how your practice is registered, your taxes will look different, and you’ll be required to complete different forms.
You likely registered for an Employer Identification Number (EIN) when setting up your private practice, so having this handy will save you time when you sit down to complete your taxes. You’ll also need your Social Security Number (SSN), and W2 forms that you’ve received from any employers, or any 1099 forms earned from contract work. Having last year’s tax return on hand will also make it easier for you, as you’ll likely need to reference it when completing this year’s return. You may need to complete a 1040 form for your private practice, and there are many online resources to help you understand what this form is.
By keeping track of your private practice’s finances throughout the year, you’ll save yourself a huge headache when it comes to tax season.
6. Figure out if you need to pay taxes in multiple states
Many therapists work across a few states, depending on their licensure. Even if they work remotely from their homes, they may still need to pay taxes in each state that their clients live. However, not all states have state tax, and there are different laws in each state when it comes to practicing across state lines – and these laws constantly change, so it’s important to seek guidance to clearly understand your responsibilities.
Even with tax laws changing from year to year, each time that you file taxes for your private practice, you’ll know a bit more and hopefully feel less stressed out when tax season comes around. Following these tips for filing taxes as a therapist, we wish you the best of luck this tax season!
Disclaimer: Zencare does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.