What are some of the most common mistakes you see therapists making in their private practices?
- You guys don’t charge enough! If you have yourself a private practice where you are seeing 18 +/- clients a week and you are struggling, a good chance is you are not charging enough. I get that you are in this profession because you just want to help people, but look you have to help yourself if you want to help others. Self care is important to therapists, and part of that is ensuring you are financially healthy. You shouldn’t be struggling financially for the work you do, you guys are invaluable, you save lives and should be paid accordingly. This may mean reducing the amount of insurance clients you see, and in return seeing more private pay clients. It may mean simply charging more for your time. If you need the courage and guidance, I suggest checking out www.heytiffany.com/ who focuses on getting you paid what you deserve.
- Not separating personal expenses from their business expenses. Get a new bank account and credit card solely for your business expenses and income. This will make tracking your spending toward the business much easier, help you see if you’re profitable or not, and at tax time all your business expenses are in one place. That last benefit is HUGE because the therapists that don’t have things separated must comb through a year of spending to pick out the business expenses which can take multiple days sometimes to do. You may not be able to get a “business” bank account or credit card if you don’t have an LLC or PLLC. Instead, just open new accounts in your name. That will suffice.
- I see many therapists spending thousands to furnish their office and going into credit card debt as result. So $5k to $15k before making a buck. It takes the therapist over a year or two to pay it off. I would shop around on craigslist for quality used furniture, decorate with a minimal amount of art and plants. Then upgrade to quality furniture and decor when the money starts coming in. This may be me on my soap box, and my perspective as a thrifty accountant; I apologize for subjecting you to my cheap ways.
I understand there may be many variables impacting this, but any suggestions on whether to file taxes separately or jointly for couples where one spouse is LLC/independent contractor and the other spouse has a traditional full time employment?
I have not encountered a situation where it’s more advantageous for the couple to file taxes separately.
I have seen one instance where the couple chose to do separate returns. They had a prenup and wanted to keep their finances separate.
Are taxes on private practice income paid quarterly? I’m planning on transferring a % of income for taxes into a separate saving account. Do I include the copay or is it just the reimbursed amount from insurance when calculating taxes? Is there a better way to automate this? Like every deposit, sending 20-25% into the savings account?
Estimated taxes are paid quarterly, but you could pay them monthly; you’re call. Some people don’t pay any estimated taxes and wait until they file their return, often writing a big check with some late fees attached.
Transferring a piece of your earnings to a savings account, earmarked for paying taxes, is responsible approach that we advise our clients to do.
Your copay is treated the same as the insurance reimbursement. Both are Revenue/Sales (the top of a profit and loss statement).
You pay taxes on the net income. Net income is revenue minus expenses (the bottom of a profit and loss statement). So that 20-25% should be applied to the net income. To figure out your net income you have to see your revenue and expenses all in one place; you have to have bookkeeping in place.
But let’s say you don’t have a bookkeeping system in place and just want to be on top of your taxes. You mentioned an automated way of doing this – taking a % of the revenue deposited into your account. You can do that! 20-25% might be too much though with this method since what you’re using as taxable income in this scenario hasn’t been reduced by expenses. Instead 15-20% would be more on the number if you are using Revenue to calculate taxes.
What can you write off your taxes as a health professional business expense?
Just about any expenses incurred running your business and maintaining your professional license.
- Advertising
- Website, Hosting, & Domain
- Bank Interest & Charges
- Insurance – Other than Health
- Insurance – Health (this one is actually not a business deduction but a personal deduction, same result nonetheless)
- Accounting, Legal & Misc Professional Services
- Equipment and Furniture
- Software
- Postage & Shipping
- Office & Waiting Room Supply
- Training, CEUs, Supervision, & Books
- Office Rent
- Business Meals & Coffee (provided they are with coworkers or professional peers and business was discussed)
- Licenses & Local Taxes
- Electric, Gas, & Waste
- Phone
- Internet
- Business/Training Trips
How important is it to save receipts?
Receipts might come into play if you get audited by the IRS. I recommend simply tossing your receipts into a bag or manila folder labeled “2019 taxes”. If it’s a digital/email receipt, save it to a folder labeled “2019 Taxes” on your desktop or cloud storage. You want access to these receipts, just in case.
Can you share a really general overview of recommendations for a clinicians just starting out in private practice? The business and finances piece is so missing in grad school for so many of us!
Great question! Many of my clients are either new to private practice, making the transition from group to going out on their own, or maybe are a few years in and found themselves lost amongst all the financial responsibilities thrown at them as a business owner. Many are confused and overwhelmed from hearing/reading about all the things they *should* be doing with their practice in the bookkeeping, tax, and legal department. I’ve heard them describe it as shame or belief they are illegitimate as a business. I can sometimes even pick it up in their voice. I’m not going to down play their concerns, starting my business, even after 9 years as a business professional, came with confusion and what felt like 100 different things I have to do.
The reality though, is you don’t have to do it all, and the stuff you are supposed to do, you can work toward accomplishing it over time. At a minimum,
- protect yourself with an LLC and malpractice, oh and act professionally, and
- do your best to regularly pay the IRS with estimated quarterly taxes, there are ton of ways to figure out what your estimated taxes are, and the easiest is paying 20-25% of your appointment fees.
No one who has made an effort with these things has been chased down by the IRS. Even if you are a little late in getting these things done, or behind in paying your taxes, as long as you’re trying.
There are probably three phases of getting your finances right:
- doing the minimum (as described in the last paragraph), this is a fairly safe place to be in initially. However, you might fall short because you don’t have any financial reports to know whether or not you’re profitable or losing money. Plus at the end of the year during tax time, you are playing catchup, spending hours going through your bank statements to add up expenses. Tax deductions get missed, you end up paying more taxes than you needed to.
- either you or a bookkeeper are doing monthly bookkeeping. This will help you see whether or not you’re profitable, and where your spending money. Having this info can help you make managerial type decisions such as cutting back on the AC, increasing or decreasing marketing expenses. This phase is a reactionary one. All your bookkeeping, tax work, and management decisions are done after the spending has occurred. You’re always looking at historical data, and making decisions based off it, provided you have time to sit down and look at your business’s financial performance. And with a profit and loss statement it’s not a challenging feat to do. These profit and loss reports have the revenue on top, and then each of your expenses categories in the middle, and then your net income on the bottom. You compare these reports against each month and you can get an idea of where you need to cut back spending wise. In this 2nd phase you or a tax preparer has all the info already organized and are able to take their time preparing the tax return accurately.
- the last phase is bringing on an advisor and/or tax pro that can interpret your financial information in order to help you make business decisions and develop tax strategy for you. The tax strategy alone can save you up 10k a year. However, most small businesses never reach this phase. That’s because tax advisors/business advisors have been cost prohibitive. There are new school accountants though, that are offering advisors services. Maybe 5% of accountants are doing this.
Does an LLC actually give protection over Sole Prioprietorships? I have read that the ‘liability wall’ that LLC is said to afford has been overturned in some cases.
For the matter of this liability protection discussion, LLCs, S Corps, C Corps and limited partnerships are considered the same. No liability protection is provided to sole proprietorships, general partnerships and general partners in limited liability partnerships. This is a huge generality, and exceptions always exist depending on agreements and state law.
Can you be sued personally if you operate an LLC? Yes. And you can easily lose on both a business and personal level. The general rule across the country is that individuals acting on behalf of a business are personally liable for their tortious conduct even if they did so on behalf of the business.
Torts is probably most people’s concern, and torts can either be- negligence where you have a general duty to act in a reasonable way and you didn’t (like drive your car safely), and intentional torts where there was a purposeful act to harm. There are other tort buzzwords like gross negligence, careless disregard, defamation, etc. Remember, negligence is the opposite of diligence.
For example. if you maintain an unsafe rental property or if you are reckless while driving the business car, you should be sued, and you should lose. For therapists I’m not sure what an example of intentional torts might be, perhaps not keeping up with the DSM/attempting unproven methods on clients/encouraging some negative behavior. Yeah, not sure about torts when it comes to your profession, but I’m sure you cover through your licensure.
LLCs do protect the owners from being personally responsible for the business’s debts and obligations unless the owners or officers personally sign for the loan (called a recourse loan).
Additionally, if your employee’s conduct creates a liability for himself and one for the LLC, the owner of the LLC may be absolved. This can get tricky depending on the conduct, and any instructions the LLC provided to the employee. This is attorney type stuff.
TLDR: Sole props don’t offer you protection, LLCs do offer protection but not if you are intentionally doing harm to others.