You didn’t become a therapist because you loved accounting and bookkeeping. You became a therapist because you love helping people. But like it or not, taxes are a part of life, and if you’re a private practice owner, they can get complicated very quickly. What forms are applicable to your practice? What deductibles do you qualify for? What tool should you use? The list of questions is long.
To make your life a little easier this tax season, we’ve compiled our top 5 tax tips for therapists. We hope these will make your dealings with Uncle Sam a tiny bit less painful.
1. Know common small business deductibles
Tax deductions for small businesses are outlined on IRS Form 1040 Schedule C. There are a number of categories for expenses that you can deduct. The full list, which you can find here, is pretty long, but we’ve broken down the common expense categories below for you. We’re not trained accountants here at PracticePicnic, so be sure to ask your accountant about which expenses apply to your practice specifically.
- Advertising: This is a broad category and includes everything you spend to promote your practice, including print and online ads, business cards, brochures, online directory fees and the signs you hang outside your office. If you promote your business with Google AdWords (or paid online search), those fees are deductible, too.
- Membership Fees: Do you hold memberships with professional organizations like AAMFT or NASW? Those fees are deductible
- Milage: If you drive your car for work (other than to and from your office), wear and tear on your auto may be deductible. The guidelines on deducting car expenses can be confusing, so be sure to talk with your accountant.
- Office Items: Another far-reaching category, this includes typical office expenses and supplies, like paper, envelopes, postage, staplers and staples, and printer ink.
2. Hire an accountant
We know how important it is to be frugal as a small private practice owner. So while it can be tempting to just do to your own taxes, we strongly recommend hiring a good accountant to help you out. Hiring an accountant for your private practice, instead of handling taxes yourself, can be beneficial for several reasons:
- Time savings: As a small private practice owner, your time is valuable and likely stretched across many responsibilities. By outsourcing tax preparation to an accountant, you free up time to focus on what matters, your clients and services.
- Reduce errors: Mistakes in tax filings can be costly, leading to penalties and additional scrutiny from tax authorities. Accountants have the expertise to minimize errors, which can provide peace of mind and potentially save money.
- Help with future planning: An accountant can help you plan for the future, advising on matters like business expansion, investment opportunities, and succession planning.
- Peace of mind: Knowing that a professional is handling your taxes can provide significant peace of mind, allowing you to concentrate on running and growing your business.
3. Separate business from personal expenses
Splitting business from personal expenses is crucial for several important reasons, especially for small private practice owners. Here are some reasons why:
- Tax compliant and deductions: Keeping business and personal expenses separate simplifies the process of filing taxes and ensures compliance with tax laws. It makes it easier to identify deductible business expenses, potentially reducing your taxable income and lowering your tax bill.
- Easier bookkeeping and accounting: Separation simplifies bookkeeping and accounting processes. It reduces the complexity and time involved in organizing financial records, making it easier to prepare financial statements and manage cash flow.
- Audit protection: In the case of an audit by tax authorities, having distinct business and personal expenses can help demonstrate financial compliance and reduce the risk of personal liability. It makes it easier to provide the necessary documentation and support for business deductions claimed on your taxes.
- Personal liability reduction: For certain business structures, such as corporations and limited liability companies (LLCs), keeping business and personal finances separate is essential for maintaining the legal protection of personal assets from business liabilities.
4. Your EHR software is tax deductible
Under current tax laws, businesses can typically deduct the cost of software that is directly related to managing their operations, including EHR and practice management systems, as a business expense.
This deduction applies because the software is considered a necessary and ordinary expense for maintaining and managing patient records, scheduling, billing, and other administrative tasks. By capitalizing on this deduction, therapy providers can lower their taxable income, thereby reducing their overall tax liability.
Of course, there are many other benefits to using an EHR other than tax deductions. Check out our article on EHR benefits for more details.
5. Some other deductions that might apply
Depending on the specifics of your private practice, these deductions may apply to you as well. Be sure to check with your tax professional for further clarification.
- Business and malpractice insurance
- Business meals and entertainment
- Office equipment, supplies, postage, and furniture
- Legal and professional fees
- Bank and merchant credit card fees
- Office rent and even utilities
- Marketing needs, such as advertising
- Computers and associated software
- Mileage for business purposes
- The depreciation of other assets
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