Today I’m sharing my thoughts on the frequently asked question, “Is my personal therapy a business tax deduction?”
The answer is, of course, it depends. 🤦
Our tax “code” (as we call it) can be tricky to understand. It doesn’t like to provide clear rules, like your personal therapy is ALWAYS deductible... or your personal therapy is NEVER deductible
But in many cases I think there is strong case to be made that you could deduct (at least a portion) of your personal therapy expenses.
The answer depends on your particular circumstances - both the nature of your private practice as well as the nature of the therapy service you pay for.
How to approach taxes without triggering an audit
Financial planners like me can’t provide tax advice tailored to your situation. We don’t have the proper license.
But we can help you think through strategy around your taxes. I want to make sure you use the tax rules to provide the best financial outcome possible. For me, that means helping you think through things like whether the S-Corp tax election might be a wise tactic to employ — and help you make sure you get every tax deduction you’re entitled to!
If you need tailored tax advice, you’ll need to seek out the services of a qualified CPA, Enrolled Agent (EA for short) or tax attorney. Any of those licensed professionals can both help you prepare your taxes as well as represent you in front of the IRS (in the event of an audit or other dispute).
What I explain here is the same type of tax thinking I offer my clients: I explain the rules, offer my interpretation or “read” of them, and then if it sounds like a good approach - we run it past one of those licensed tax professionals I mentioned above.
Running a potential tax strategy or potential deduction by a licensed tax profession helps you make the right decision for you. No one can tell you for sure how the IRS will interpret something - or if they might challenge a particular deduction you’ve taken. But a qualified tax professional can help you decide how risky any particular move is. This helps ensure we manage taxes effectively without taking on any undue tax risks.
So what about your personal therapy bill - is it a tax deductible expense?
In order to be a deductible business expense, that expense needs to be both “ordinary” and “necessary.” If you’d like a refresher on what the heck that means, read this blog post.
On the ordinary front, I do think it’s fairly customary for licensed professionals to pay for outside consultations from other therapists. So paying for one-on-one work with a fellow therapist feels pretty ordinary to me.
When it comes to “necessary,” remember the expense doesn’t have to be “indispensable” — it just needs to be “helpful” and “appropriate.” In other words, there should be a clear link between what you’re purchasing and your ability (or skills used) to generate revenue.
Let’s think through a couple examples.
Let’s say you’re training in EMDR. You’ve never had an EMDR session, and think it would helpful for the development of your clinical skills to experience an EMDR session as a client. In this case, even though it might feel like personal therapy, this feels pretty clearly to me like an expense that relates 100% to your business. In this case, I’d argue that close to 100% of the business expense should be a deduction.
Let’s take a different case. Let’s say you're an art therapist who works exclusively with children. You and your partner are going through couples therapy. In this case, the personal therapy you’re paying for doesn’t relate too closely to the type of therapy you practice. You might decide that none of this personal expense relates to your business (and therefore not take anything as a deduction). Or you might decide that a small percent, say 10% or 20%, of the expense qualifies as an ordinary and necessary business deduction.
Remember that the IRS allows you to take a business deduction for personal expenses, but only the percent that relates to the business. The non-business portion of the expense is not a deduction.
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Deciding to take this deduction is a personal decision
There is no one right answer to whether you should take a deduction for your personal therapy. It depends on your situation and your appetite for tax “risk.”
You have to have a rationale for why the particular type of therapy session you’re attending relates to the particular type of therapy you practice. And then you have to decide on the appropriate percent of the expense that relates to your business (and is therefore a tax deduction). There are no hard and fast rules here.
Your answer depends on how much tax, or audit, risk you’re willing to take on. If you want to do everything you can to avoid being challenged by the IRS, you might not want to take this deduction at all. On the other hand, if the amount you could deduct generates significant tax savings, you might be willing to deal with the risk of a little bit of pushback from the IRS. In that case, deducting a portion of your personal therapy bill might be the right move for you.
If you do decide to deduct some of your personal therapy, I’d suggest you do a few things:
- Save your receipts! (You should always do this for your business expenses.)
- Document (in writing) your rationale as to why your personal therapy qualifies as a business deduction. And document how you arrived at the appropriate percentage to deduct. The percentage is more art than science, but document some type of rationale here.
- Run your rationale and percent by a qualified tax professional: a CPA, EA (Enrolled Agent) or tax attorney. They will help you assess how strong your argument is and how much risk there might be that the IRS challenges you.
I realize all this might feel a bit in the weeds of tax law. But understanding some of these tax details helps you take every deduction you’re entitled to. I want you to pay every cent of tax you owe - but not a penny more!
Financial planners like me can be valuable thinking partners to help you decide the right tax strategies to employ, including whether to deduct a portion of certain personal expenses, like personal therapy.
That's a Wrap 🎬
That's it for this today's post. I know we covered a lot and yet it is but one small part of navigating the entirety of your financial life.
If this all feels a bit much, give me a shout. I work one-on-one with therapists from all over the country helping them address issues just like the ones we talked about today! Learn the different ways you might work with me on my services page.
Turning Point is a registered investment advisor in the state of California. Please visit turningpointhq.com for important information and additional disclosures. This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes financial, legal or tax advice; a recommendation for purchase or sale of any security; or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Read the full Disclaimer here.