The Best Tax Filing Tips for Therapists

Raise your hand if you dread doing your taxes every year. 

If you’re like us, and most of the country, a discussion about taxes is probably not the most thrilling topic. 

Alas, they are a necessary evil, and the deadline rolls around every year with certainty. Starting at the end of January until mid-April, the IRS accepts and processes tax returns for the year prior. 

Staying on top of your finances – from bookkeeping, saving receipts, to paying quarterly estimates, can help you as a therapist in private practice when the annual deadline rolls around. By planning ahead, you can make sure you’ve got everything you need to support your income figures, maximize your deductions, and pay the correct amount of taxes – not a penny more. 

Clarity Cooperative is here to answer all your questions; continue reading to take a look at some of our best tips on everything tax related for your private practice. 

To DIY or Not To DIY

A question that we’ve all asked ourselves at some point in time – Should I do my taxes myself, or hire someone to do them for me?

Who’s Who in Accounting and Taxation

In order to even think about hiring someone to handle your taxes for you, you’ve got to know who’s who in the business. Tax and finance professionals also have their own specialties within their field. In most situations, the person that's managing your ledger isn’t going to be the same one that helps prepare your tax forms. 

Here’s a crash course on who does what, so you know who to turn to for help:

• Bookkeeper: They help you categorize and keep track of expenses, cash flow, and other day-to-day finances.
• Accountant or CPA: They take care of your accounting – creating and checking all your financial and tax reports. You can also hire an accountant or CPA for your therapist tax preparation or advise you regarding the best way to handle your taxes.
• Tax advisor: They advise you on how you can maximize your tax savings and minimize tax obligations within the confines of the law.
• Tax preparer: They help you compile and file all necessary tax forms.

When To Outsource Your Therapist Tax Preparation

If keeping expenses low is your goal, completing your bookkeeping and taxes on your own could be a good idea. Doing them yourself can additionally help you stay on track with your budget because you’ll be able to see what money is coming in and going out. 

Outsourcing these tasks is also a good idea if you’re not used to doing taxes, whether it's for yourself or your private practice. Hiring a licensed and qualified tax expert can save you time, avoid potential mistakes, and could even save you money by finding deductions or tax credits you weren’t aware of. 

One way to decide whether it's better to hire someone or DIY is to ask a few questions:

How long would it take you to do your own bookkeeping, accounting and tax prep? 

How much would it cost to hire someone to do all of it for you? 

Let’s compare how much you charge per hour for a session with the cost of hiring someone else to handle your taxes. If your fee is $150 per hour, and it takes you 10 hours to complete your taxes, that comes out to $1500 of potential lost income. If you're given the estimate of $1000 to prep and file your taxes, it might be better to save time and go with the professional for your therapist tax preparation needs. You could go about with your work day and save $500.

Did you know that working with a tax professional also counts as a deduction on your tax return? This means that while you are paying for their services, that amount is deducted from your income and shaves a bit off the total tax bill for the year. 

Tax Software: The Happy Medium

If you’ve got the time or skills to handle your own taxes, go for it. 

Using a tax or bookkeeping software can help the process be a bit smoother. It’s still considered DIY and they are valuable if you go this route because their systems are automated, and you can easily categorize expenses into certain groups. 

Filing taxes online usually comes with some assistance, depending on the platform used. To get the best support, it's recommended to pay for a program or subscription service, though there are also free tax softwares available. Usually when there’s a cost associated with a service, it's because they save you time and a potential headache. 

Most software is made for a specific task — for example, bookkeeping or accounting. Even with programs that offer several services, like tax estimates on top of bookkeeping, you will likely still need to take care of paying the taxes on your own.

Just like hiring a real, human professional – all of these DIY options are tax deductible too. 

Save the (Tax) Dates

One of the most important topics when going over taxes are the deadlines. You might forget every birthday, even your own, but this is one that you’ll need to stay conscious of.  

The confusion surrounding taxes doesn’t only revolve around determining how much you owe ,but also when you need to pay and file your taxes. Take note: even those two can have different deadlines. 

The Number One Date To Remember

In general, the annual tax filing deadline stays the same every year. If you file once per calendar year, then it is due on or around April 15 — this date can vary depending on whether it falls on a weekend or holiday.

For example, in 2023, April 15th fell on a Saturday. Washington, D.C.’s Emancipation Day is celebrated every April 16 and it fell on a Sunday. When holidays are on Sundays, they are celebrated on the next business day. Monday, April 17th would have been the filing deadline, but because of this holiday it got pushed back to Tuesday, April 18th. 

Hopefully you don’t forget about filing by mid-April, but in case the date springs up on you – don’t worry. The tax deadline is also the last day you can request an extension, meaning extra time to file your taxes. You’d submit a Form 4868 instead. 

Here are some other key dates for filing taxes throughout the year, keep in mind these dates can change slightly from year to year:

• February 28: Report health coverage of employees
• March 15: Tax due date for businesses registered as partnerships, multi-member LLCs, and S-corporations that follow a calendar year business
• April 15: Tax due date for C-corporations
• April 15: Tax due date for estimated tax payment for Q1
• June 15: Deadline for estimated tax payments for Q2
• September 15: Deadline for estimated tax payments for Q3
• September 15: Deadline for partnerships and S-corporations that requested tax return extensions
• October 15: Deadline for C-corporations that requested extensions
• January 15: Due date for estimated tax payment for Q4 for individuals

Take note that these are only the key tax filing dates and don’t cover every single tax deadline or filing date. You can check out the comprehensive list of all important tax deadlines from the IRS for a more detailed schedule, and be sure to check annually as the dates can vary slightly. 

What Happens If You Miss a Tax Deadline?

We’re all human and things slip our minds sometimes – what happens if you end up missing a tax deadline?

The answer really depends on which deadline was missed, and whether you had taxes due or would have gotten a refund. 

If you missed a payment deadline, it's best to take care of it as soon as you can. Interest and penalties can accrue as more time passes. The same applies to missing a tax filing deadline where you owe taxes. 

Seeking guidance from a tax professional or directly to the IRS for assistance is recommended as this can be a difficult process to navigate. 

Tax Extensions

If you’re unable to get all your ducks in row in time for the annual tax filing deadline, you can file for an extension. This allows you six extra months as an individual taxpayer and as a business entity.

There’s just one little, but very important thing you need to remember. An extension to file your taxes isn’t the same as getting an extension to actually pay them. Estimated tax payments should continue to be sent to the IRS on a quarterly basis to avoid any penalties and interest. 

Top Tax Filing Tips for Therapists To Survive Each Tax Season

Now that we’ve covered the basics, let’s get down to what you need to know and some tips and tricks we’ve got for you to survive the season. 

Know What Forms To Use when Filing Taxes for Therapists

It’s not really a surprise that there is a different form for each filing, and for each person depending on if they’re filing individually or as a business. 

For instance, as a sole proprietor or single member LLC, the form you’d submit is a Schedule C along with your personal tax return. However, an S-corporation will instead use a Form 1120 or 1120S while a multi-member LLC uses a Form 1065 Partnership.

Save a Percentage of Your Salary for Taxes

If you’ve been setting aside a portion of your income every month for taxes, then you’re doing great. If you aren’t yet or haven’t been able to, it's not the end of the world, but something you can work towards doing as your practice grows. 

Saving a percentage of your monthly income as a reserve to pay your taxes quarterly or annually can help minimize the tax burden come April 15th. If you’ve ever held W-2 employment, where you are an employee – part of your taxes were automatically deducted from your paycheck. Now that you work for yourself, no one is taking that money out of your income, so it’s up to you to put that aside. 

The main benefit of doing this is to prevent sticker shock when the tax payment date rolls around. Depending on how much income you’ve been bringing in – the bill could be a pretty sizable amount. 

How do you know the amount to save when you don’t know how much is due yet? 

The IRS has an estimated tax worksheet to help make computing this easier. You can also opt to reach out to an accountant to help you calculate the amount you need to save per month. 

Keep Track of Your Expenses and Deductions

The silver lining to a stressful tax season is that you can still save a respectable amount of money thanks to deductions.

Almost anything spent that goes toward running, managing, or improving your business can be a tax write-off. This means that amount is deducted from your total income to help reduce the amount of taxes you have to pay.

Check out our resource on tracking business expenses and deductions for more information in addition to this list of qualified deductions: 

• Advertising and marketing expenses
• Office supplies
• Liability insurance
• Malpractice insurance
• Association and membership fees
• Banking fees, including credit card interest
• Start-up expenses
• Accounting and bookkeeping expenses
• Licensure fees
• Continuing education expenses
• Personal therapy

Telehealth and Taxes for Therapists

Do you offer telehealth services? 

If you do, you may need to check in with your accountant, tax attorney, or advisor on the best way to pay your taxes – and whether you need to file in additional states. 

Telehealth is a great option for clients that want to see you, but live in another town, or even across state lines. Depending on each state’s policies regarding telehealth, you may need to pay taxes to that state. By checking to see if there are reciprocal agreements you can see if residents are allowed to practice out-of-state without needing to pay those taxes elsewhere. 

If there isn’t a reciprocal agreement in place, you might need to file two or more tax returns, depending on what states you practiced in. The first would be for the state you live and physically work in, and the others for states you have telehealth clients in, but aren’t a resident of yourself.

Get Much Needed Support During Tax Season

Clarity Cooperative offers resources to help you manage every tax season – quarterly and annually. We also offer a community where you can ask questions and seek support from other like-minded therapists about anything private practice related. 

For more tax help, check out our Go-To Guide for Tracking Business Expenses and Tax Deductions, and our calculator to Optimize Your Tax Deductions. 

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