Finances have been shown to be a major concern for most Americans. It is no wonder that according to a Zogby Survey, 56% of Americans report tax season to be a significant source of stress. For those newer to owning or operating an independent business, taxes can be especially complicated. We want to go into tax season feeling confident we have the knowledge to maximize our refund, or at least minimize any penalty.
Frequently Used Expense Categories for Mental Health Business Owners
While there are many expenses associated with owning a business, many of these are seen by the IRS as tax-deductible expenses. While I always recommend business owners work with a tax professional, it can be useful for us to have a general understanding of what expenses many mental health businesses can deduct.
For those who are using a home office exclusively to deliver in-person or telehealth treatment, some of your rent or mortgage may count as a tax deduction.
If you are meeting with a colleague to discuss work or sitting down with an accountant over coffee, track this as a business expense.
Business Registration and License Fees:
Costs associated with formalizing your business which may include incorporating (LLC, S Corp, etc.), registering with your local business registry, and renewing your state clinical licensure—all may be legitimately tracked as a business expense.
Continuing Education Credits:
Continuing Education Credits can be an expensive but necessary part of keeping in compliance with our licensure requirements. Keep receipts, because they can be tax deductible.
Association and Membership Fees:
As specialists, we often pay fees to be a part of professional organizations, such as, the National Association of Social Workers (NASW), American Psychological Association (APA), etc. These costs are tax deductible.
Subscriptions and Marketing Costs:
Monthly subscriptions to online advertisers, such as, Psychology Today, and Good Therapy, for instance, as well as social media marketing costs promoting your practice can also be tax deductible expenses.
Therapy Resources and Supplies:
While mental health professionals generally don’t have inventory, they do spend money on office supplies. Whether these supplies include tissues, Theraputty, notebooks for journaling, or sticky notes—these are all write offs.
Electronic Health records’ fees, including Luminello, are write offs.
Driving to and from a client’s home, traveling to and from Continuing Education classes, or mandated Seminars are tax-deductible expenses.
LMHC licensure is a costly process not only in time, but also in money. Hiring a legal consultant when necessary can be expensive. These professional fees can also be written off.
Whether you are paying an accountant or paying for an app to do your bookkeeping, that expense is tax deductible.
Professional Liability Insurance:
As clinicians are in the medical field, it is extremely wise to have professional liability insurance. This cost is another deductible expense.
Track Your Expenses Regularly
Figuring out the cost and category of all your expenses right before you file is a recipe for high stress and careless mistakes. Take time each month to review your accounts and document your expenses. Having a log of expenses at the end of the year you can reference will greatly reduce the workload for you and your tax professional. If spending time each month looking at expenses and tax write-offs seem daunting or simply unpleasant, there are many programs that offer this service for a price. Forbes lists the best business expense trackers including Zoho Expense, Quickbooks, and several others.
Open a Business Bank Account
As early on in the process as possible, I recommend opening a business bank account. If you are a sole proprietor, it is easy to think, “Well, it’s all my money; why not keep it in one account?” While this may work for some, a lot of clinicians find it easier to track financial growth and business expenses by keeping a business bank account. If you have incorporated and become an LLC, a separate bank account is mandatory.
While all this may still seem intimidating, I assure you that it is manageable. Especially if you use the right tools and get assistance from tax professionals. If you are new to this, I encourage a lot of patience with yourself. Taxes and accounting are often not intuitive and there is certainly a learning curve. Continue to educate yourself where possible.