For private-practice clinicians, tax deductions are critical to your business. All those expenses, fees and costs incurred to run your business can be deducted from what you owe Uncle Sam, saving you potentially thousands each year.
We’ve cataloged some of those lesser-known deductible expenses for private practice clinicians, along with explanations for the more confusing deductions (plus some funny GIFs along the way). Whether you or your accountant prepares your taxes (and we recommend an accountant help you at least the first year of your practice), this guide can be a resource as you track all those receipts, ensuring you maximize your tax write offs.
Some logistics before we get started
For many small businesses, deductions are cataloged on IRS Form 1040 Schedule C. Expenses are organized by type (advertising, fees, office expenses, etc.), which can be a bit confusing since there is some overlap. Be sure to check with your accountant if you have questions about where to count each expense. For detailed information on tax deductions, you can read the IRS’s detailed instructions here.
And now, let’s talk those deductions…
This is a broad category and includes everything you spend to promote your practice, including print and online ads, business cards, brochures, online directory fees and the signs you hang outside your office. If you promote your business with Google AdWords (or paid online search), those fees are deductible, too.
Do you hold memberships with professional organizations like AAMFT or NASW? Those fees are deductible!
If you drive your car for work, other than to and from your office, wear and tear on your auto may be deductible.
And because it’s the IRS (and the IRS is nothing if not confusingly thorough), you can deduct car expenses one of two ways:
- Use the standard mileage rate set by the IRS each year (for 2015, the reimbursement rate is 57.5 cents per mile driven).
- Or deduct the actual expenses you incurred using your vehicle for work, including gas, parking, registration fees, repairs, and so on. This method requires more work but can be preferable if gas is pricey where you live or your car requires frequent maintenance work.
Regardless of which method you use, you can only deduct expenses for work-related use of your car. That includes driving to and from conferences, lunches with colleagues or going to meet your accountant. Keep a detailed log of all those expenses, so you’re sure to separate business from personal use.
The guidelines on deducting car expenses can be confusing, so be sure to talk with your accountant, or if you’re feeling intrepid, read all about it here.
Banks are well-known for imposing fees. Fortunately, if those fees were related to running your business, they’re all deductible. So the monthly fees you pay to maintain a business account can be written off.
Credit card processing fees are also deductible. For SimplePractice customers, this means the Stripe fees you pay to process credit card payments through the Client Portal can be deducted!
Another far-reaching category, this includes typical office expenses and supplies, like paper, envelopes, postage, staplers and staples, and printer ink.
For private-practice clinicians, this also includes costs to maintain your office such as toilet paper, hand soap, towels, coffee for clients, landscaping, cleaning services, and magazine subscriptions for the lobby.
Keep in mind, this category only covers expenses for products that are disposable and aren’t meant to be used after one year. Items that are more expensive and have a longer life, such as office furniture and computers, are counted under depreciation.
Depreciate or die
This category covers all those big-ticket purchases for your business, including office furniture, computer equipment, software (like SimplePractice!) and improvements to your office. Unlike office supplies, depreciated items have a longer life, and can be used over a 5 or 7 year period (the time varies depending on the item).
You have two options when it comes to depreciating big-ticket items: you can either deduct a portion of the cost over many years, or the life of an item’s worth or you can deduct the entire expense up front for the first year you use the item.
There are pros and cons to either option. If you’re just starting up, you might want the money back right away, in which case deducting the full cost in that first year can help.
On the other hand, depreciating (also called amortizing) can be advantageous if you anticipate your taxes increasing in future years.
You can read more about depreciation here, but be sure to discuss your specific circumstances with your accountant.
Contract labor and employee benefits
In addition to deducting employee wages, you can also deduct benefits you pay out to your employees, including health plans, life insurance, and dependent care assistance programs.
If you hired any contracted employees, such as a virtual assistant, graphic designer, blogger or business coach, those wages can also be deducted.
If you took out a business loan to launch your practice, you can deduct the interest for that loan, along with the interest for the mortgage of your office, credit card and line of credit.
The IRS rules for interest deductions are lengthy, so contact your accountant for more info.
Continuing education and conferences
Did you attend any classes or training events over the year? Those expenses are fully deductible, as long as the training was directly related to your business.
If you traveled to attend any conferences or training events, the travel expenses may be also deductible, but be sure to read up on the details, since there are a lot of requirements which must be met.
If you ever worked for an employer before starting your own practice, self-employment taxes can be a rude awakening. Fortunately, some of that extra portion you pay for Medicare and Social Security taxes can be deducted.
And finally: don’t get audited!
With all these deductions, it’s important you keep clear and thorough records. Detailed record keeping can be a lifesaver if you’re ever audited, but by clearly itemizing all of your expenses, you’ll reduce your chances of an IRS audit in the first place.
One final note…
We’re not accountants and can only speak in general terms for the average private practice clinician. If you have specific questions about deductions for your practice, it’s best to check with your tax person.