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My wife is building a business as a therapist. She has signed an agreement with an established private practice whereby they provide certain services/benefits to her -- things like office space, advertising, leads for new clients, insurance processing, charting software, etc. -- in exchange for a percentage of her revenue, which they call "dues". In addition, her current level of licensure requires that she pay another therapist with a higher level of licensure for "professional supervision". She paid both the private practice (a partnership) and the other therapist more than $600 in 2020, so she filed a 1099-NEC for each.

Now it is time to prepare our taxes, and I'm struggling a bit to determine which categories on Schedule C these expenses fit into. The instructions are vague enough that it seems like more than one could work. Obviously, I'd like to do it right if I can.

  1. For the "dues" expense it seems like either "Commissions and fees" or "Contract labor" might be the best fit, but I suppose you could also make an argument for "Advertising" or "Office expense", since a portion of the fee does go toward those things. Or maybe it belongs in "Other expenses"?

  2. For the "professional supervision" it seems like "Legal and professional services" fits the bill best, but the instructions seem to indicate this is intended for accountants and attorneys. So maybe "Contract labor" works better here?

I would appreciate any insight you might have.

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I’ll let you in on a little secret: It doesn’t matter a whole lot which line you put these business expenses on; the tax will be the same no matter which one you pick.

That having been said, you do want to pick the best option you can. I think if I was doing it I would pick “Commissions and Fees” for the “dues” expense, and “Contract labor” for the “professional supervision” expense.

If you haven’t seen them yet, take a look at both IRS Publication 334 “Tax Guide for Small Business” and Publication 535 “Business Expenses”, which both go into much greater detail on exactly how much and where you might deduct different types of business expenses. But ultimately, if you are declaring the right amount of expenses, you’ll be paying the right amount of tax, and it won’t really matter much which of these boxes you put it in.

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  • It's funny, in an earlier draft of my question I had opined the same thing-- that maybe I was making too much of this; after all, the boxes all total up the same in the end. I think I was more worried about whether there could be any negative repercussions from the IRS for classifying things incorrectly. So thank you for easing my mind on that. I did spend a bunch of time looking at both of those publications before I posted here, but neither did much to clarify to me where "dues" or "supervision" would fall. I think your recommendations are sound, so I'll just go with that and call it a day.
    – Brian Rogers
    Mar 9, 2021 at 15:55

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