This blog is a little different but suuuuuuuper important for therapists in private practice to consider... Jennifer Bierds, CPA is answering your tax questions!
I surveyed a group of therapists to see what were the most common or applicable questions, then I shot them over to Jennifer. She's got some great insights for you so check it out...
1. Can I use the time I give free sessions (pro bono sessions) as a deduction of some kind?
Generally speaking, the lost income from providing free sessions to regular clients would not be deductible. I’ve had the same question regarding “no shows”. Basically, you can only have deductions if you have corresponding income to deduct them from. Therefore, if there was no income received, no deduction is allowed.
However, if you are donating your time to a charitable organization, the value of your time could be considered a charitable contribution. The deductibility would be determined based on the circumstances, as would the value. I would recommend consulting with an accountant to help you sort out the specifics.
2. How can I get more write offs? How close can I get to the “edge?”
Document every single expense and keep receipts! The IRS says any expense deemed both “ordinary and necessary” to conduct your business is deductible. So if you can justify it, count it as a business expense, no matter the amount. Those receipts add up over the course of a year, and when you’re self-employed, every little bit helps!
Aside from business-related purchases, there are numerous other ways to reduce your tax liability. Keep track of your miles driven for business purposes, contribute to a retirement fund, donate to a local charity, the list goes on and on. Working with someone who specializes in tax planning is the best way to minimize your taxes, and you’ll most likely save more than you would spend for the service.
3. Should I be an LLC, INC, S Corp or SP and why? What is the difference?
Note: This may be state specific!
I’m going to assume that you are a single practitioner working in private practice on a contract basis, which is the most common scenario (there are several factors to consider when deciding on a business structure, so this is not going to be all-encompassing). Most people in this situation would either opt to be an LLC or an S Corp. Technically, you could be an LLC and elect to be taxed as an S Corp (as is the case in Texas).
The main benefit to either, as opposed to working with a DBA or Assumed Name, is that you have limited liability, meaning your personal assets are protected in the event you are faced with a lawsuit - thus, the “limited liability”. Many people start out as working under as a single-member LLC. Essentially, all of your business income is reported on your 1040 Schedule C, and flows right through on your personal return.
At a certain income threshold ($100,000 is the generally accepted number), it becomes more beneficial to elect to be taxed as an S Corp. Doing so reduces you self-employment tax liability because you are now paying yourself a salary. With this salary also comes the requirement to pay payroll taxes, and filing quarterly and annual payroll tax returns, however. You would also be required to submit an 1120S in addition to your 1040 at tax time.
4. How do I know when (or if) I'm supposed to file quarterly taxes?
Anyone who expects to owe at least $1,000 in annual taxes is required to make quarterly estimated payments. The payments are due around mid-month in the month following the end of the quarter, depending on the way the days fall during the year. Usually, when your tax return is prepared, you will receive vouchers to make estimated payments for the coming year. When in doubt, consult your tax advisor, or do a little research on IRS.gov, which is actually very helpful.
5. What do I need to do to remain compliant? And who can actually do this for me?
Depending on your business structure (LLC, DBA, S Corp, etc), you can be expected to submit any number of tax returns or informational forms throughout the year. These will also vary according to your state’s requirements. Most CPAs can help you get through the year without default.
6. How do I find the right tax person for me?
Do your research - ask your friends and family for referrals, look around online, then contact a few candidates. Especially since you are self-employed, you need to have the guidance of someone you can trust and feel comfortable with to help you navigate all of the regulations and requirements that come along with running your own business.
Find someone who will take the time to listen and answer all of your questions. If they don’t return your phone call or e-mail within 24 hours, move on. Some accountants forget that we are in the business of working with people, not just their money, and let customer service fall to the wayside.
So there you have it! Tax season is stressful enough and having some answers to basic questions or direction on where to go for more help is priceless. If you have more questions, feel free to post in the comments below and we'll make sure you get some answers.
After spending 10 years in the banking industry and having a baby, I felt it was time for a career change. I’ve been doing my counselor husband’s tax returns since we started dating 11 years ago, so accounting seemed to be the natural choice for the next step for me. So, with a growing boy at home with a very supportive husband, I spent many late nights in class and studying. I’m now a fully licensed Texas CPA, working on taxes and bookkeeping for a wide range of clients, from individuals to small corporations. My specialty is working with professional service-based businesses to keep their "back office" running smoothly and optimize their financial potential. My practice has fully virtual capabilities, so I can help anyone, anywhere, through secure online interactions within my website, www.BierdsCPA.com.
And for the record, our son says he’s going to be an accountant when he grows up :)