Private Practice Business Expenses
The goal of this article is to give you a brief overview of many of the common expenses you will likely encounter in your practice. As always I highly encourage you to air on the side of caution when taking deductions. You will likely see based on the loose definitions of the many of the categories there may be some crossover in which specific category to actually place an expense. If you have ANY questions when you prepare your taxes always ask your tax preparer. They are the expert and always know best. Never. Ever. Guess.
Also just keep in mind that you will be reporting your business related expenses on the Schedule C portion of your tax return. This allows you to use the expenses to decrease not only your income taxes, but also your self-employment taxes.
If you are new to private practice I would highly suggest meeting with an accountant who specializes in small businesses to get the lay of the land as it relates to the business expenses. While I am not an expert by any means, I have been audited by the IRS, and therefore feel like I have solid understanding of taxes as they relate to private practice.
However, I can only speak from personal experience. Therefore, please keep in mind depending upon the many possible variables of running a small business your experience will likely not mirror mine.
This includes any materials for marketing your business (i.e. business cards, flyers, signage, ads, branded promo items, events) and the cost of developing those products.
Think outside the box when it comes to just declaring traditional advertising costs. Any type of promotion or marketing aimed at either attracting new clients or keeping your current clientele can be potentially considered an advertising expense. Often we just think of paper marketing – but remember in this category to include things like the cost to create your website as well as any social media marketing (i.e. Facebook Ads) you may have used. I often use websites like Fiverr and Etsy for logo creation and assistance with marketing material so I list those expenses in this category.
Rent or Lease Payments
Payments made to rent office space and/or lease equipment (like an expensive scale or metabolism testing device) are both tax-deductible. However, if you own the property, have equity in the building or hold the title to the property, you cannot deduct these payments.
Payments made for electricity, telephone, internet and gas for your office space are deductible business expenses. Remember when it comes to business use of your cell phone you need to be able to differentiate between personal and true business use.
Therefore, if 30 percent of your time on the phone is spent on business, you could legitimately deduct 30 percent of your phone bill. I would suggest keeping your phone invoices and assessing what overall percentage on average you are using by reviewing actual data and not guessing.
Insurance intended to protect your private practice (i.e. fire, theft, flood, property, malpractice, general liability and malpractice). For more information on the importance of liability insurance read my resource article called link to: Why You Need Professional Liability Insurance ASAP here as well as review the sample agencies that insure dietitians.
Note if you are fully self-employed and purchase your own health insurance it is deducted under this category.
Business Use of Car
You can expense the business portion of your actual car expenses (e.g. gas, insurance, registration, repairs and maintenance). There are two ways of determining the business use of vehicle. You can either take the standard deductions if you qualify or you can actually itemize the true cost. For more information on determining which avenue to take check out the IRS’s article entitled, Business Use of Car.
However, you have to be super careful that you only deduct the portion of these expenses as they relate to your business. This means that if your vehicle is used for both business and personal activities (which it likely is!) then you are only able to deduct the exact portion that relates to your business.
For the 2019 accounting year the IRS determined that the standard cost of mileage reimbursed is 58 cents per business mile driven. Remember, these are ONLY business miles. There is a huge difference between commuting miles and miles related to your business. Commuting miles are NOT deductible. To learn more of what classifies as commuting read this article IRS Commuting Rule: Mileage Rules & Commute Definition.
For example, your drive to and from your home to your practice is generally NOT considered deductible as that is considered commuting. But say you perform home visits or do contract work on occasion for a big corporation those miles would be deducted.
Therefore, no matter what – if you are intending to declare ANY business miles you must keep careful records. You can either keep a log in your car or use an app like Mile IQ to keep track of your miles.
The IRS requires the following:
- Your mileage
- The dates of your business trips
- The places you drove for business
- The business purposes for your trips.
The IRS also wants to know the total number of miles you drove during the year for business, commuting, and personal driving other than commuting. Therefore, I would highly suggest writing down the odometer reading at the start of every business year as well as the start every month.
Another expense you may be eligible to take is depreciation on business assets. Example of depreciable goods include items such computers, office equipment, furniture, even expensive scales (think InBody or Seca). While you can depreciate an asset at any time in the course of your business; it is good to be aware of this deduction when you are first starting your practice as there is a good chance you might make some expensive purchases in the ‘start up’ process.
Depreciation allows small business owners like YOU to reduce the value of an asset over time, due to its age, wear and tear, or decay. Rather than take the upfront cost as a deduction; you depreciate the cost of the asset over time on your taxes eventually claiming the full cost.
There are many things to keep in mind with depreciation. In order to use depreciation as a deduction, you must own the asset, and it must have a “useful life” of more than one year. The IRS requires that you write off the depreciation over the useful life of the asset. You can begin to depreciate the property once it’s in use, and you stop depreciating it when you’ve fully recovered its cost or you stop using it in your business.
Note: The IRS requires you to use Form 4562 to claim these deductions. There are three different ways to determine depreciation. Want to learn more about each method? Check out this quick article Depreciation of Assets by the folks at Turbotax.
Home Office Deduction
Depending on your office set-up and particular scenario, expenses related to a home office such as the business portion of rent, utilities, repairs, insurance, mortgage interest may be claimed as an expense.
The IRS has strict criteria to deduct expenses for business use of the home. I will identify the criteria as it likely relates to dietitians.
You must use part of your home as one of the following:
- Exclusively and regularly as your principal place of business for your trade or business;
- Exclusively and regularly as a place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business;
- A separate structure that’s not attached to your home used exclusively and regularly in connection with your trade or business;
Therefore, whether or not you take this deduction really depends on how well you fit the criteria outlined above as well as how you conduct your practice. Here is quick read entitled Tax Hacks 2019: Do You Qualify for a Home Office Deduction? that sums up the three key aspects of business use of home as a viable tax deduction.
Office Supplies are the tangible office items, like pens, staplers, paper clips, USB thumb drives and printer ink cartridges.
Also included in office supplies are:
- Record keeping supplies, like invoices and sales receipts
- Printer paper
- Mileage notebooks/clipboards
- Scheduling books (if you keep a paper schedule)
- Cleaning supplies
- Places to keep supplies like file boxes
The IRS also includes postage in office supplies. So if you are mailing doctor’s packets you could either include the expense under this category or under ‘advertising.’ You could also include small items of furniture (under $2500) in this category, such as a desk, bookcases and file cabinets.
Office expenses are the expenses of running an office. Duh! Right? These include web site services, internet hosting fees, domain names, monthly costs for apps (like Google Drive), web based software like QuickBooks products, merchant account fees (cost to run credit cards), and most software and hardware. You might also put cell phone expenses under office expenses (if you have not already taken the expense under utilities).
Keep in mind if you have any office supplies, expenses, or equipment that cost over $2,500 then these become depreciable assets. See above on depreciation.
Lastly, you may only deduct the costs of supplies and materials used in the current year. This means you can’t just buy a large quantity of copy paper at the end of the year and consider it an expense in that year. Although I have to say as an office we go through a TON of paper! Speak to your accountant on how to determine the percentage of the actual expense to take. While you definitely don’t want to declare false information on your tax returns; you do want to take every possible expense to decrease your taxable income.
You can deduct payments for registration fees and materials for seminars and courses that you attend as part of continuing education credits for our field. Therefore, conferences like FNCE as well as your affiliate’s annual meeting can all be deducted. Aside from conferences you can deduct expenses like books related to your business.
For continuing education to be deductible, you must be able to show that the education:
- “Maintains or improves skills required in your present work.”
- It is required by law or regulations for maintaining a license to practice, status, or job. For example, for dietitians to maintain our credential we need 75 continuing education credits. Therefore, this expense would be considered required by law.
Education expenses are not deductible if:
- The education is needed to meet the minimum educational requirements of your present trade or business. For example, you can’t deduct the cost of obtaining a license to practice if you don’t already hold such a license.
- The education is part of a program of study that will qualify you for a new trade or business.
Like with any expense always keep awesome records. I would highly recommend you print out education expense related invoices as they occur; not retroactively. Like I noted, I got randomly audited in 2018 for my 2015 taxes. I attended FNCE in 2015 but did not keep a copy of the program for the conference. The IRS agent wanted to see the program for FNCE and I had to jump through several hoops with the Academy to get this information. Lesson learned. Pretty much keep anything and everything as it relates to your business deductions.
Travel expenses are the ordinary and necessary expenses of traveling away from home for your business. While you can’t deduct expenses that are lavish or extravagant (but oh how I would LOVE to charter a private plane!) or that are for personal purposes. These expenses might include such things such as:
- meals (including tax and tip when applicable)
- rental car
- local transportation
- parking fees
- use of car while at your business destination. Deductions may include actual expenses or the standard mileage rate, as well as business-related tolls and parking fees.
- tips you pay for services related to any of these expenses.
The travel must be overnight, away from your residence and primarily for business.
According to the IRS your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. Therefore, if you regularly work in more than one place, your tax home is the general area where your main place of business or work is located.
There are two ways of keeping track of travel related meal and travel expenses. You can either take a standard deduction or you can itemize the actual cost. The standard meal allowance will varying depending on where you travel. Use this link to view the per diem rate (per state) for lodging and meals. While the deduction for business meals is generally limited to 50% of the unreimbursed cost.
I CANNOT encourage you enough to keep excellent records as it relates to travel and meal expenses. In my unfortunate experience of working with the IRS they really like to dive deep into this category. Therefore, keep every AND all travel receipts such as airline boarding tickets, copies of conference programs/schedules, receipts for all meals including, invoices and receipts for hotels, parking garage tickets and gas receipts.
Meals and Entertainment
In 2018, the IRS made some changes to the business deduction for meals and entertainment. Prior to the passing of the tax reform legislation, a business generally could deduct 50% of expenses for business related meals and entertainment.
Under the new law, deductions for business related entertainment expenses are now 100% not deductible. As of the writing of this blog (2019) certain business meals with clients, prospects, referral sources, etc. are still 50% deductible.
According to the IRS the following applies:
- Taxpayers may deduct 50% of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverage expenses are ordinary and necessary in carrying on the trade or business and are not considered lavish or extravagant under the circumstances.
- The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
- Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event or if the cost of the food and beverages are stated separately from the cost of the entertainment on one or more bills, invoices or receipts.
Meals that are 100 % deductible include:
- Transportation costs to and from a business meal or entertainment activity, may be 100 percent deductible or 50 percent depending on the facts.
- Meals provided on the employer’s premises for the employer’s convenience, if more than 50 percent of the employees are furnished meals for the employer’s convenience
- Promotional activities that are made available to the general public
- Employer-provided social/recreational expenses primarily for the benefit of employees who are not highly compensated, such as a summer picnic or holiday party
- Business gifts up to $25 to any one individual per tax year
- Tickets to charitable fundraising sports event
Therefore, it is critical to keep great records when it comes to meals and entertainment. I would highly encourage you to document the following:
- Date and time of event
- Cost of meals and beverages separately stated
- Business purpose
- Name of business associate(s)
- Relationship of individual(s) (i.e. customer, client, potential customer, employee).
Also I would hold onto all receipts, itemized paid bills and other expenses of $75 or more.
Club Dues and Membership Fees
Membership dues paid associations such as the Academy and the likes of The Chamber of Commerce of which you are a member are deductible business expenses. Keep in mind that fees paid for the following are not tax-deductible:
- Country clubs
- Golf and athletic clubs
- Hotel clubs
- Sporting clubs
- Airline clubs
I think some tax experts debate whether memberships paid to places like Costco, BJs and even Amazon Prime can be deducted. I think like with most expenses it goes back to what average percentage of the membership is used for business versus personal use. When in doubt – consult with your tax professional.
Legal and Professional Fees
Payments made to attorneys, CPAs, financial planners or other professionals for your business are deductible business expenses. These might also include the cost to purchase legal services from websites like Legalzoom to set up your business as well as the cost to prepare your taxes.
If you prepare your own taxes using tax software like TurboTax, the amounts paid to purchase the software and e-file your federal and state tax returns are also deductible business expenses. However, once again I would HIGHLY recommending using a tax professional to help prepare your taxes. Small business taxes as you can see are complicated. So it is worth it to seek out a professional.
Repairs & Maintenance
The cost of ordinary repairs and maintenance are fully deductible. Some repair expenses I have deducted are things like having a new floor installed, painting, and even the cost to have someone hang cabinets in my office. Also don’t forget about repairs on things like computers/laptops and printers.
Well, I hope this article helps clarify some of the important tax deductions you can likely take as a private practice dietitian. I cannot stress enough if you are newbie to private practice I would highly suggest meeting with an accountant who specializes in small businesses. And lastly, no matter what – keep awesome, up-to-date records. Save everything and anything related to the expenses of your business. You never know when you might need them.