Tax preparation information provided for therapists
The US Tax Code is more than 6,500 pages long. So, it’s not surprising that therapists flock to webinars like one hosted recently by the American Psychological Association in cooperation with Heard, an online accounting platform for psychologists. The topic was key tax preparation information for therapists. These talks are so popular, in fact, that Heard runs more than 60 of them a year for various organizations.
“Clinicians and psychologists love education and it’s always such an engaged audience,” said Andrew Riesen, CEO and founder of Heard, whose company offers their own software along with personalized support.
Who to use?
Learning the ins and outs of a complex tax code to make filing simpler, take advantage of savings, and avoid fees or penalties is one part of running a small business many therapists should want to outsource.
But whether that necessitates using a bookkeeping app, a local accountant, or an online platform can depend on several things including cost, income levels, and personal preference.
“If you’re earning less than $25,000 in your practice, set up a bank account and a spreadsheet, and file with TurboTax at the end of the year,” said Riesen. “There are not a lot of tax savings in $25,000.”
Between $25 and $100k in earnings, Riesen suggests investing in a bookkeeping service or software and working with a tax professional at the end of the year.
Practices clearing more than $100,000 would be best served, he added, by hiring either a local accountant if that one-on-one relationship is important, or an online tax platform, which may offer better service than what you can find locally.
It’s not worth doing it yourself to save money, Riesen explained, both because it is not worth the billable hours spent and working with someone more knowledgeable can provide additional benefits.
“It is going to lower stress levels,” he said. “It’s going to feel like you have a business partner, somebody who helps you set a strategy for how you’re approaching your business from an accounting and tax standpoint.”
Accounting hygiene
For all practices, small or large, the first thing that Riesen recommends is setting up an easy-to-follow system, with designated checking and savings accounts, and sticking to good accounting “hygiene.”
He also recommends paying estimated taxes quarterly where required, setting aside 30-35% of all income in case you make more this year than last, and researching tax filing requirements in all states where you are licensed.
Filing as an S Corporation?
One topic that garners a lot of interest is around whether to file as an S Corporation, a tax designation that removes the 15.3% self-employment tax that a private practice may owe on top of federal and state taxes.
“This is one of the sexier topics in our very boring world of accounting,” said Riesen.
Once again, the simplest answer is that it depends on income, with a threshold of $80,000-100,000 as a guideline for when to start comparing costs versus savings.
Filing as an S-Corporation will incur additional costs, including hiring an accountant, separate tax returns, and setting up and managing payroll systems.
“It can lead to tax savings but you have to make sure you are ready for the additional burden in your practice,” said Riesen. “Then, after all expenses, will this actually save me money.”
Deductions
For deductions that are sometimes missed, Riesen reminds therapists to pay attention to things like memberships to professional associations, meals spent consulting with a colleague, travel costs around conferences, continuing education, advertising and marketing, and home office space.
“If it looks like a business expense, if it smells like one and it feels like one,” he said, “run it through your business account. At the end of the year, let the accountant [or tax prep software] tell you that it is not a business write off you can take advantage of.”