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A Guide to Taxes for Private Practice Therapists

Great Lakes Psychology Group

For self-employed therapists with a private practice, taxes are not something you can ignore until April rolls around; rather, taxes are an ongoing consideration in running your private practice.

Especially for therapists new to private practice, the tax aspect of your business can seem daunting. As long as you’re aware of the basics, however, it doesn’t have to be.

Here are 3 important tax practices for self-employed therapists: 

1. Save a percentage of your income for quarterly estimated tax payments

Since taxes won’t be taken out of your paychecks automatically, it’s important to set aside a certain percentage of your income so you’re prepared when quarterly estimated taxes are due. 

Yes, quarterly taxes. Payments made quarterly are based on an estimate of how much you’ll owe at the end of the year. If you forget to pay estimated taxes, the IRS will charge interest on top of what is owed. 

So how much should you set aside from each paycheck? This percentage will vary based on factors like the number of people in your household, whether you’re filing jointly or independently, your household income, and various other things. 

Use this worksheet from the IRS to estimate your quarterly tax payment. The document also includes helpful information like due dates and the address where you should mail your payment depending on the state you live in.

You’ll need your estimated annual income to estimate your tax payments. If you don’t know your annual income yet, you might start by setting aside about 25%-30% of your monthly income for taxes, then making adjustments once you have a better idea of your income. 

Keep in mind that these payments are based on an estimate, which means you could get a refund if you overpaid, or you can choose to apply your overpayment to next year’s taxes. If you underpaid, you’ll have to make up the difference.

Keep in mind that depending on where you practice, in addition to federal quarterly taxes you may also owe state, city, and/or county quarterly taxes as well. 

2. Keep track of business write-offs

Pretty much anything that is necessary to run your private practice can be written off as business expenses. These write-offs will be submitted annually when you file your taxes, so it’s important to keep track of them throughout the year. Here are some common business expenses for self-employed therapists: 

  • Supervision costs
  • Costs for training, conferences, continuing education classes, etc.
  • Any devices used for business purposes (e.g., smartphone, laptop, tablet)
  • Reading materials (e.g., books, professional magazines or journals)
  • Memberships to professional organizations
  • Liability insurance
  • Licensure fees
  • Marketing materials
  • Assessment materials
  • Office supplies

Items used for both business and personal use, such as your smartphone, will not be written off 100%. Items like this will be deducted as percentages.

What about travel costs like gas and mileage on your car? Technically, travel costs are not deductible when you are traveling from home to your job. However, travel costs from one work location to another are deductible. Therefore, if you sometimes work from home, travel costs from your home office to your private practice location may be deductible. 

Every time you purchase something for your business, track it. This is much easier than going through your expenses at the end of the year and trying to remember every purchase you made for your business. It’s also important to keep your receipts, as you’ll need proof of purchases if you ever get audited.

A spreadsheet, tax software, or an app on your phone are probably the best ways to keep track of business expenses, but if you’re technology-averse, a notebook will work too.

3. Consider hiring a tax professional or using tax software

Maybe you love a good challenge, can’t resist a fun math problem, and enjoy staying up to date on changing tax rules and regulations. By all means, more power to you if you choose to do your taxes on your own!

If not, help is available, and probably prudent. The expenses for an accountant or tax software are usually worth it if you consider the money (and headaches) you may be saving by having a professional file them for you. Also, expenses for an accountant or tax software are tax-deductible. 

Remember, however, that even if you hire an accountant or use software to file your taxes at the end of the tax year, you’re still responsible for paying your estimated taxes quarterly and keeping track of your business expenses throughout the year.

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