Even if you hire someone, it’s still a good idea to understand the tax implications and best practices for bookkeeping and accounting in your private practice.
Mental health professionals aren’t typically required to take any type of accounting education, so this may become a “later problem” that doesn’t catch your attention until tax season, or until you realize that you’ve dropped the ball and need to pay taxes, file amended tax returns, or even prepare for an audit.
Let’s start with a look at some common terms you’ll need to be familiar with.
- Income/Revenue: This refers to any money that comes into your business, usually in the form of clients paying for your therapy/coaching services. If you sell books or other items, those sales will be included here, as well.
- Expenses/Deductions: These are costs involved in running your business. The list could include rent, supplies, office equipment, utility bills, phone bills, etc. Some people also call this “overhead” and it refers to any money spent on the business itself.
- Draw/Distribution: This is what you get paid from the business. Typically, this pay will come out of the business income. The amount will vary based on what you can afford or what kind of profits you have.
- Equity/Contribution: This refers to money of your own that you invested in your business.
- Profit/Net Income/Taxable Income: When you subtract your expenses from your income, the amount remaining is your profit, also sometimes called net income. It’s what the IRS and states use to calculate taxes owed.
- Profit & Loss Statement/Income Statement: This is an essential business document that outlines your income and expenses, including all the calculations, to determine whether your business is operating at a profit or a loss.
- Balance Sheet: This statement is used to report all of the business assets, equity, and liabilities.
These terms will help you better understand all aspects of your accounting and bookkeeping, no matter what type of private practice therapy business you have.
Still feeling foggy about what all these financial terms mean? Don’t worry-our advisors are committed to guiding you through everything you need to know about bookkeeping for therapists. Unlike other firms, we prioritize building personalized relationships with each of our clients so you can get the attention and support you need.