Key Takeaways

• Tracking expenses is essential for calculating your profit
• An expense-tracking system helps you claim every tax deduction you are entitled to
• The IRS generally has three years from the date you file to audit a return, and that extends to six years if you omit more than 25% of your gross income. Keeping receipts and records for six years is a safe, simple rule of thumb
• If you earn 1099 income, keep a separate business account and track every expense as you go

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As with any business, when you run your own therapy practice, you need to track expenses.

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If you don’t, it’s impossible to tell how much profit you’re earning. That means, come tax season, filing an accurate tax return is difficult, if not impossible.

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This seven-step guide includes everything you need to know to track your expenses in an accurate, organized fashion. Plus, you’ll learn how to save and organize expense records—like receipts—so you can take advantage of tax deductions.

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Why you need to track expenses for your therapy practice

Two really good reasons to track expenses for your therapy practice:

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1. So you can see how much you’ve earned, and track how your business is performing
2. So you can take advantage of tax deductions

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Here’s a breakdown of each.

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Unless you track expenses, you can’t see how much you’ve earned over a particular period. Remember: 

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Revenue - Expenses = Profit

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Revenue is often referred to as gross income (income before you take expenses into account) and while profit is referred to net income (income after you’ve taken expenses into account).

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You may be able to add up all the money clients have paid you during the month of April, but if you don't know how much money you spent in the same period—on expenses like rent, your phone bill, and software subscriptions—you don’t know how much profit you’ve made.

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That makes it hard to plan your business and prepare for the future. And it makes it almost impossible to file an accurate tax return. 

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The process of keeping track of day-to-day revenue and expenses is called bookkeeping. This is distinct from accounting, which has more to do with filing taxes and making large-scale business plans. Learn about the difference between accountants and bookkeepers.

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Tax deductions are the second big reason you need to make sure you track expenses. Many of the expenses you pay to run your therapy practice—from therapeutic toys and tools, to business travel, to membership dues for professional organizations—are tax deductible. Some practice owners may also qualify for the home office deduction. 

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As an example, if you made $120,000 last year, you’ll have to pay income tax (and self-employment tax) on all of that $120,000—unless you report deductible expenses. For instance, if you report deductible expenses totaling $40,000, you’ll only pay taxes on $80,000. That’s a big difference on your tax bill.

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That’s because deductions reduce both your income tax and, if you’re a sole proprietor or single-member LLC, your self-employment tax, which is about 15.3% of your net earnings.

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Importantly, if you deduct expenses on your tax return, you need to have proof that you incurred that expense. This typically takes the form of receipts. 

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If the IRS audits your therapy practice, and you don’t have receipts or other records to prove your expenses, the IRS may disallow those deductions, and you could owe back taxes, interest and potential penalties. Receipts are the most common proof, but other adequate records, like bank or card statements, invoices and mileage logs, can also help support an expense.

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You need to have a way to store your receipts and keep them organized. The IRS generally has three years from the date you file a return to audit it, and that window extends to six years if you omit more than 25% of your gross income. Keeping receipts for six years is a safe, simple rule of thumb. You can read the IRS’s guidance on how long to keep records. 

How to track your therapy practice expenses

Follow these seven steps to set up a system for tracking your therapy practice expenses as you incur them, as well as saving and holding on to receipts for your records.

Open a business checking account

If, up until now, you’ve used a personal account for all your therapy practice’s earnings and expenses, book a meeting with your bank to open a business checking account ASAP.
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Heard Banking* is our recommended option since it's included with every Heard plan at no extra cost. Every expense is automatically categorized based on a chart of accounts designed for private practices, so tracking is effortless from day one. Learn more about opening an account today.

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When you use a personal account to pay business expenses, your personal and business expenses become intermingled. Looking at your bank statement, it’s hard to tell which is which. 

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Granted, you could go back over your account history and carefully determine which debit charges were for your business, and which were for your personal life. But that could significantly eat up time better spent on helping your clients, and eventually, mistakes are bound to happen.

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When you have a separate bank account for your therapy practice, and you strictly use it for business expenses and earnings, you never have to worry about figuring out which expenses are personal, and which are business. You can look over your account statement for a particular month and see all your business expenses and earnings. 

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And if you use accounting software, you may be able to automatically import your expenses as you incur them. More on that below.

Learn which expenses are tax deductible

Not all business expenses can be deducted. And some—like certain business meals—are only 50% deductible.

It also helps to know what other therapists spend. Heard's 2025 income report found the average therapy practice spent $40,668 on business expenses in 2025, led by rent ($10,396 a year), software ($3,636), office expenses ($2,813), and marketing ($2,165).

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At the end of the day, you need to track every expense you incur in the course of doing business, so you can see how much profit you’re making. But when you know which expenses are deductible and which ones aren’t, you know exactly the ones for which you need to save receipts.

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Here’s a quick reference for some of the most common therapist expenses and the records that support them. Whether an expense is deductible always depends on your situation, so check with a tax professional if you’re unsure.

Common therapist expenses: how to track them and whether you need a receipt

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For the full rundown, see our complete guide to tax deductions for therapists.

Scan your receipts with an app

For many of your regular expenses, you may already get receipts in a digital format. For instance, your landlord may email you a copy of your annual rent receipt. And your internet and phone providers will likely give you online access to receipts from within your account.

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Even large, non-recurring expenses, like office furniture and computers, often come with digital receipts.

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But everything else—office supplies, business meals, gas for your car during business trips—comes on paper.

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Paper is easy to lose and damage. And it’s hard to keep track of, no matter how advanced your receipt filing system.

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To save time and energy, and create business records that can’t be destroyed by a spilled coffee or a small gust of wind, digitize all your receipts. Many accounting software packages include phone apps that let you take photos of your receipts and categorize them. If you don’t use accounting software, an app like Expensify can take care of it for you. If you use Heard, you can simply upload photos of receipts to your account, where they’ll be organized and saved. For how long to hold on to them, see our guide to retention rules for paper receipts.

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Switching to a paperless system is the best way to keep your receipts organized, and ensure you’re able to take advantage of every possible tax deduction for your therapy practice.

Store all your receipts in one place

Once all your receipts are in digital format, you need to keep them stored in a single location.

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Your annual rent receipt from your landlord may be sitting in your email inbox. Your phone and internet bills may be accessible only by logging into your respective accounts. And your digitized paper receipts may only exist in the app on your phone.

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None of that is sustainable. When it’s time to round up receipts—whether in order to enter them in your accounting software, for the sake of day-to-day bookkeeping, or in order to store them long term—you’ll be doing a lot of running around. And when you have a million different apps and accounts to keep track of, it’s easy to lose track.

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Here’s how to get all your digital receipts organized in one place:

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1. Obtain local copies. Almost all digital receipts stored in online accounts and apps offer the option to download or export PDF copies. If they don’t, you likely have the ability to print to PDF, and save a local copy on your computer. Make retrieving local copies of receipts part of your monthly bookkeeping routine—something you do at the beginning or end of every month. This guarantees you always have copies of receipts on hand for your records.

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2. Upload them to the cloud. Set up an account with Google Drive or Dropbox, with a directory designated “Receipts.” Every month, as part of your bookkeeping routine, upload all your local copies of receipts to this folder. Storing your receipts in the cloud not only insures you against computer meltdowns or thefts. It makes them easy to share when you work with a bookkeeper or accountant.

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3. Back up the cloud. Even the cloud isn’t impervious to outages. When you upload your receipts to the cloud, either back up extra copies onto a USB key, flash card, or external hard drive, or after uploading local files, download the contents of your “Receipts” folder as a zip file, and then back it up on physical media.

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Sorting through files may seem onerous at first, especially if you have lots of catch-up bookkeeping to do. But, make it part of your monthly routine, and it will soon become second nature.

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And remember: six years is a safe, simple rule of thumb for how long to store your receipts for deductible expenses in case of an IRS audit. The IRS generally has three years from the date you file to audit a return, extending to six years if you omit more than 25% of your gross income.

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Connect with your bookkeeping system

Whether you’re an Excel maven who does their own bookkeeping with spreadsheets, or you use accounting software, or you even work with a professional bookkeeper and/or accountant, you need to link up your expenses with whatever bookkeeping system you use.

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The goal is to get as close as possible to a scenario where, every time your business incurs an expense, it’s immediately recorded on the books.

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• If you use spreadsheets to do your own bookkeeping, importing expenses may take the form of entering them whenever you incur them. Or, if you don’t have a large volume of expenses, it may mean reviewing your online bank statement every week, and entering your expenses based on that.
• If you use accounting software for your therapy practice, you should be able to set it up to automatically import all expenses from your bank account to your general ledger. It’s still up to you to make sure those expenses are accurately categorized, however.
• If you work with a bookkeeper, they can automatically import your expenses from your bank account and categorize them for you. Alternatively, you can send them copies of your receipt, and they can make bookkeeping entries based on those.

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Whatever bookkeeping method you use, the most important part of this step is setting up a routine whereby your expenses always get recorded on the books. For DIY bookkeeping, that means setting a regular schedule to do the work manually.

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If you have a bookkeeper, it may mean answering the occasional question about how an expense should be categorized—but otherwise, your system is hands-free.

Conduct regular expense reviews

Once you’ve connected your expenses to your bookkeeping system, and you have a routine in place for recording all your receipts and storing them in one place, you have everything you need to determine your profit and take advantage of tax deductions.

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Now is a good time to set up a recurring expense review. Doing an expense review means looking over your expenses for a particular period, and finding ways to lower or even completely cut them.

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This is when it’s especially helpful to work with an accountant who can sit down and go over your expenses with you. Reviewing your expenses on at least a yearly basis, when you file your taxes, is simply good housekeeping. 

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It helps you find ways to save money by either completely cutting expenses, or finding new ways to lower them. That could be something as basic as canceling a subscription to an app or service your practice never really uses, to finding a new office space (or even going fully remote.)

Consult with a professional

If you find you often make errors when tracking your expenses, or you often forget to record expenses on the books, don’t feel bad.

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After all, you started a therapy practice so you could help clients—not so you could spend hours every month trying to catch up on bookkeeping. 

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One way to ensure you track and categorize your expenses accurately, and your books are up to date, is to work with a professional bookkeeper. Even better is to work with a bookkeeper and an accountant, which guarantees you’ll be able to take advantage of as many tax deductions as possible.

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Learn more from our article on bookkeepers vs. accountants.

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How to track 1099 expenses as a therapist

Many therapists earn some or all of their income as independent contractors. If you see clients through a group practice, clinic or platform and receive a 1099 (typically a Form 1099-NEC) instead of a W-2, you’re generally treated as self-employed. That typically means no one withholds taxes from your payments, and you’re responsible for tracking your own business expenses. Not sure which forms apply to you? See the difference between a W-9 and a 1099.

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The good news is that the same system from the seven steps above works for 1099 income. Here’s how to adapt it.

Keep a separate account for your 1099 income and expenses

Have your 1099 payments deposited into a business account, and pay your business expenses from it. That way, your bank statement becomes a clean record of what you earned and what you spent. Heard Banking* is built for private practices and automatically categorizes your expenses, which helps you see your business income and expenses by category.

Track the expenses that apply to 1099 therapists

Track every expense you pay yourself to do your work, then talk to a tax professional about which are deductible. Common categories include software and subscriptions, professional liability insurance, license fees, continuing education, professional dues, supplies, phone and internet, and mileage between work locations. Skip anything the practice you contract with already pays for or reimburses.

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Keep a receipt, invoice or log for each one. Our DIY bookkeeping spreadsheet template is a simple place to start: log each 1099 payment by payor, record each expense by category, and save the matching receipt in a cloud folder.

Set aside money for taxes

Because 1099 income typically has no tax withheld, self-employed individuals generally pay self-employment tax as well as income tax, and make estimated payments throughout the year. See our guides to paying quarterly estimated taxes and filing taxes as a 1099 contractor therapist. Tracking your expenses throughout the year shows you your real profit, so you can estimate what you owe more accurately.

Choose a tool to track 1099 expenses

There’s no single best app for tracking 1099 expenses. The best tool is the one you’ll use consistently. Here’s how the common options compare.

Ways to track expenses

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Whichever you choose, record expenses as you go and keep your receipts in one place.

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Frequently asked questions

How long should I keep receipts?

The IRS generally has three years from the date you file a return to audit it, and that extends to six years if you omit more than 25% of your gross income. Keeping receipts and records for six years is a safe, simple rule of thumb. See the IRS’s guidance on how long to keep records.

What expenses can a therapist deduct?

Generally, ordinary and necessary business expenses, such as rent, software, phone and internet, supplies, continuing education, professional dues and marketing. Business meals are generally only 50% deductible. What you can deduct depends on your situation, so see our complete list of tax deductions for therapists and check with a tax professional.

What’s the best way to track 1099 expenses?

Keep a separate business account, record each expense as it happens, and save a receipt, invoice or log for each one. A spreadsheet, accounting software, a receipt-scanning app, a bookkeeper or Heard can all work. Choose the option you’ll stick with.

Can I use bank statements instead of receipts?

Bank and card statements can help support an expense, but they may not show what you bought. The IRS says supporting documents should identify the payee, the amount paid, proof of payment and the date incurred, and a combination of documents may be needed. Keep receipts or invoices whenever you can.

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Always scrambling to keep up with the bills? Careful budgeting can help you plan for business expenses. Learn how to create a budget for your therapy practice.
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Summary

• Because expense tracking is essential for running a business, it’s best to put a system in place as soon as your practice gets off the ground
• Apps like Expensify can help you track expenses and save receipts, Heard members can upload receipt photos to their account, or your bookkeeping/accounting system may come with its own built-in tools
• Subtracting your deductible expenses from your revenue gives you your net profit, which is the starting point for figuring your taxable income and accurately filing taxes
• The IRS generally has three years from the date you file to audit a return, extending to six years if you omit more than 25% of your gross income, so keeping receipts for six years is a safe, simple rule of thumb
• Without a receipt or other records proving an expense, the IRS may disallow the deduction and you could owe back taxes, interest and penalties. Other adequate records, like bank or card statements, invoices and logs, can help support expenses
• If you earn 1099 income, keep a separate business account, track every expense as you go and set money aside for taxes

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Visit our Therapist Tax Center and Tax Deductions for Therapists Hub for everything you need to know about taxes as a practice owner. If you're just starting out, here's everything you need to know about How to Start a Private Practice as a Therapist.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.


*Heard Banking is a financial technology company, not a bank. Banking services provided by i3 Bank, Member FDIC. Banking technology powered by Unit Finance, Inc. The Heard Visa Debit Card is issued by i3 Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. Deposits may be eligible for up to $3 million of FDIC insurance through a network of participating banks. Each participating bank is FDIC insured up to $250,000 per depositor, per bank. Accounts are eligible for pass-through deposit insurance only to the extent pass-through insurance is permitted by the rules and regulations of the FDIC, and if the requirements for pass-through insurance are satisfied.

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Bryce Warnes is a West Coast writer specializing in small business finances.

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