Diane Kennedy, CPA
1 min read
Tax Deductions Therapists Often Miss (And Why They Get Overlooked)
Many therapists miss valuable tax deductions because they don’t look like typical business expenses. From supervision to office ambiance,...
Many therapy-related business expenses—like payment platforms, software, and HIPAA-compliant tools—are often tax-deductible if they meet IRS criteria. Proper bookkeeping is essential to avoid missed deductions or overstated income.
Understanding What Counts As A Deduction
One of the most common questions therapists ask when running their own practice is: “What can I actually deduct?”
The honest answer is it depends.
The IRS defines deductible expenses as those that are “ordinary and necessary” for your business. That flexibility works in your favor—but it also requires careful judgment and accurate tracking.
Let’s break down some of the most common categories.
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See your savingsPayment Platforms (IVY Pay, PayPal, Stripe)
If you’re collecting payments from patients, you need a reliable system in place.
Platforms like IVY Pay, PayPal, and Stripe are widely used because they make billing and payment collection simple and secure.
The fees you pay for these services are generally deductible. They’re considered both ordinary (commonly used in your industry) and necessary (required to operate your business).
Practice Management Software (SimplePractice And Others)
Most therapists rely on software to run their practice efficiently—handling scheduling, documentation, billing, and communication.
Tools like SimplePractice, TherapyNotes, and TheraNest are designed specifically for therapists and often include HIPAA-compliant features to protect client data.
These subscriptions are typically deductible because they directly support your day-to-day operations and compliance requirements.
HIPAA-Compliant Phone And Telehealth Services
If you offer telehealth or communicate electronically with clients, HIPAA-compliant systems aren’t optional—they’re essential.
This includes secure phone lines, telehealth platforms, and encrypted messaging tools.
Because these services are required to operate legally and ethically, they are generally considered necessary business expenses and are deductible.
Where Therapists Get Tripped Up: Tracking The Numbers
Even when expenses clearly qualify as deductions, they’re often missed—or recorded incorrectly.
A common issue is relying solely on Form 1099-K from payment processors.
This form reports gross income—not what actually lands in your bank account.
It doesn’t account for:
- Processing fees
- Refunds
- Discounts
If you report only the 1099-K amount, you risk overstating your income and missing legitimate deductions.
A Better Way To Handle It
To stay accurate and compliant, you need to track:
- What your payment processor reports
- What actually gets deposited
- Fees and adjustments in between
You should also ensure:
- Deductions are properly categorized
- Bank and credit card accounts are regularly reconciled
This is where Lettuce can make a meaningful difference. Lettuce helps automate bookkeeping for therapists by tracking income, categorizing expenses, and reconciling accounts—so nothing gets missed and your records stay accurate year-round.
Why This Matters More Than You Think
Bookkeeping is often pushed aside—but that comes at a cost.
Without accurate records, you’re not just disorganized—you could be:
- Missing deductions
- Misreporting income
- Creating issues at tax time
Lettuce is built specifically to simplify this process for private practices, giving you clear, accurate financials without the manual work.
A Practical Next Step
If you’re unsure whether your books are accurate, start here:
- Review your bank and payment deposits
- Compare them to your 1099-K
- Ensure fees and subscriptions are recorded
This simple review can uncover most common issues.
Therapy Practice Expenses Frequently Asked Question (FAQs)
Are IVY Pay fees tax-deductible?
Yes, in most cases. Payment processing fees are considered ordinary and necessary business expenses and are generally deductible.
Is SimplePractice tax-deductible?
Yes. Practice management software used to run your business is typically deductible.
Do I need a HIPAA-compliant phone line for it to be deductible?
If it’s required for your practice, it is generally deductible. HIPAA compliance strengthens the “necessary” classification.
Can I just use my 1099-K for income reporting?
No. The 1099-K shows gross income, so you must also account for fees, refunds, and other adjustments.
Conclusion
Understanding what you can deduct is only half the battle—tracking it correctly is what really makes the difference.
Lettuce is designed to help therapists stay on top of their finances by automatically organizing income, capturing deductions, and keeping records audit-ready. If you want cleaner books and more confidence in your numbers, try Lettuce and get started today!
This article is part of the Tax Strategy Series, featuring in-depth, practical guidance from Diane Kennedy, CPA—bestselling author, strategic tax consultant, and founder of USTaxAid and KennedyTax.tax. Explore the full series and catch every installment here.