Tax season can be a revealing experience for therapists in private practice. It not only offers a detailed view of your income and expenses but can also reveal organizational shortcomings. If you’ve fallen behind on bookkeeping, tax season can serve as a stressful wake-up call.
Preparation is key as tax season approaches. Use this guide to learn about often-overlooked steps that can help you navigate tax season with less stress.
Check Your Filing Deadline
Tax deadlines occur around the same time each year, but dates can shift slightly. When tax season rolls around, be aware of the specific deadline for your business entity type. Whether you file as a sole proprietor, S Corporation, or LLC (Limited Liability Company), your entity type can affect deadlines.
Consider Which Business Structure To Elect
If your practice is registered as an LLC, tax season might be a good time to consider electing a new entity type.
Different business structures can offer various tax benefits, so it’s worthwhile to explore a switch. Consult an accountant to understand which business structures might benefit you.
Check Where You Need To File
Being licensed to practice in more than one state can expand your opportunities, especially for telehealth. But when it comes to tax season, these additional licenses can produce extra work.
Check the laws of the states you practice in to determine whether you need to file. Some states have different filing rules for residents and non-residents.
Get Your Bookkeeping Up To Date
Bookkeeping can easily fall behind during the year, but you’ll feel the impact when tax season arrives. Accurate bookkeeping is essential for creating a profit and loss statement and assessing your yearly income.
Now is the time to organize all transactions, assess deductibles, and ensure everything is accounted for. Do this before tax season begins, so you have complete records ready when needed.
Organize Your Receipts
Business purchases that qualify as deductibles require receipts. In the past, these were likely paper copies. If you have paper receipts, locate and organize them.
Today, most business expenses come with electronic receipts. From phone bills to scheduling software, these bills might be scattered in various online folders.
Organize your receipts into one local storage center—a USB drive is convenient and easy to use.
Check Your Deductibles
If you reuse some deductibles from previous years to save time, review them to ensure nothing has changed. For instance, if you switched EHR software, your bill and deductible might differ.
Prepare To File 1099s For Contractors
For any contractors hired during the tax year, you’ll need to send a Form 1099-NEC. Additionally, send a copy to the IRS and keep one for your records.
To file a Form 1099, you’ll need the contractor’s full name, address, and either their TIN or SSN. This information should be on the Form W-9 provided at the start of your working relationship.
Before tax season begins, gather this information. If you don’t have the W-9, contact the contractor.
If you sit on an insurance board, the insurance company will send you a 1099. Be on the lookout for this form and ensure the dollar amount matches your records.
Estimate Your Tax Payments (Or Refunds)
As a private practice owner, you’ll likely need to pay taxes quarterly rather than in a single lump sum. Quarterly payments are required if your annual tax liability exceeds a certain threshold.
To estimate quarterly taxes, calculate your expected year-end tax liability. Most people base this on the previous year’s payments. If you overestimate, the IRS will refund you; if you underestimate, you’ll owe the IRS the outstanding amount.
With the year nearly over, compare your actual income to your estimated income for a more accurate tax bill projection. Use this revised estimate to prepare for a bill or a refund.
Set Financial Goals For The Next Year
After a taxing season, it’s tempting to neglect finances, but doing so can lead to recurring problems.
Reflect on your finances and bookkeeping. What’s working, and what needs improvement? If bookkeeping lagged, what changes can help you stay organized next year? Does your budget reflect your current financial situation?
Consider consulting with an accountant, financial planner, or tax advisor to develop a more effective business plan.
Conclusion
The best approach to tax season is preparation. Start assessing your bookkeeping, deductibles, and contractor information well in advance. With some planning, you can avoid a hectic filing season and minimize mistakes.