Can I Write Off Therapy as a Business Expense?

Tax deductions reduce an individual’s or business’s taxable income. The Internal Revenue Service (IRS) sets specific rules for what qualifies as a deductible expense, distinguishing between personal and business expenditures. Understanding these distinctions is key for accurate tax reporting and maximizing potential tax benefits.

Understanding Business Deductions

The IRS permits businesses to deduct “ordinary and necessary” expenses incurred during operation. An ordinary expense is common and accepted in the specific industry or business type; it is a customary cost. A necessary expense is helpful and appropriate for the business, though it does not need to be indispensable.

For an expense to be deductible, it must directly relate to and benefit the trade or business, rather than serving a primary personal purpose. Common examples of deductible business expenses include employee compensation, rent for office space, utilities, insurance premiums, advertising costs, and professional fees.

Understanding Medical Expense Deductions

Individuals can deduct medical expenses that meet specific IRS criteria. A medical expense is defined as the cost of diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. This includes payments for medical services provided by physicians, surgeons, dentists, and other medical practitioners. Costs for equipment, supplies, and diagnostic devices also qualify.

Common examples of deductible medical expenses include doctor visits, prescription medications, hospital care, and health insurance premiums paid out-of-pocket. To claim this deduction, total qualifying unreimbursed medical expenses must exceed 7.5% of your adjusted gross income (AGI) for the tax year. Expenses merely beneficial to general health, such as vitamins or a vacation, are not deductible.

Therapy and Business Expense Deductibility

Therapy costs are considered personal medical expenses and do not qualify as business expenses for tax purposes. This is because personal therapy primarily benefits an individual’s overall health and well-being, rather than directly or solely serving the business. Even if therapy helps improve an individual’s ability to work, it fails the “ordinary and necessary” business expense test.

For therapy to be a business expense, it must be directly related to and essential for business operation, a high bar to meet. In rare circumstances, such as therapy directly mandated for severe work-related trauma uniquely impacting business function, it might be considered. Proving such a direct and sole business connection is difficult for general mental health support. Personal growth or general mental health support, even for business owners, is still categorized as a personal medical expense.

Claiming Therapy Costs as Medical Expenses

If therapy costs meet the criteria for medical expenses, they can be claimed as an itemized deduction on your tax return. You must gather and maintain documentation, including receipts, invoices, and proof of payment for all therapy sessions. These records should show the provider’s name and address, the amount and date of each payment, the nature of the services received, and who received the care.

Medical expenses are reported on Schedule A (Form 1040), Itemized Deductions. Only the amount exceeding 7.5% of your adjusted gross income is deductible. You can only deduct medical expenses if your total itemized deductions, including medical costs, exceed the standard deduction amount for your filing status.