When you run your own therapy practice, tax season can feel like the most stressful time of the year. 

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But it doesn’t have to be. With a little preparation and planning, you can make sure your next year in business starts off right. Follow these ten tips to start prepping for tax season now.

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Designate time each week to prepare for tax season

Let’s face it: unless you’re a natural-born accountant, sorting through financial records and preparing for tax season is probably not your idea of a good time.

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That makes it easy to procrastinate. The best antidote to procrastination in this case is a clearly-defined schedule.

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For starters, set aside one or two hours every week to focus exclusively on tax prep. If it looks like you’ve got a hefty pile of work to deal with—months of catch-up bookkeeping, for instance, or tracking down missing financial records—then schedule more time.

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When you know that every Wednesday between 9am and 11am (for instance) is dedicated to tax prep, it makes it harder to put off the work indefinitely. You may even want to keep a journal, noting which tasks you tackle each session.

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Besides the future satisfaction of an easy tax season, you enjoy an immediate benefit: the knowledge that you’re making real, tangible progress on your taxes and taking control of your finances. It’s empowering.

Review last year’s filing

Once you’ve got a steady schedule in place, the first task on your list is reviewing last year’s filing.

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Looking into the past helps you plan for the future, helping you:

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• Anticipate your tax bill. The taxes you owed on last year’s earnings may give you a sense of how much your total tax bill for the present year will come to. That way you can set aside cash for a lump sum payment, or budget for any shortfalls or refunds (if you’ve been paying quarterly estimated taxes). 
• Flag any major changes. It’s good to have a sense of what’s changed in your practice before you meet with an accountant. For instance, if your expenses have drastically increased compared to last year’s, or if your income has significantly changed, it will affect this year’s filing. Higher expenses could knock you into a lower tax bracket, while higher income could bump you up. 
• Remind you which records you need to keep. Any business expenses you claimed last year should have been backed up by thorough records (ie. receipts). Reviewing last year’s expenses can help you plan for what you need this year. For instance, if you claimed the cost of EHR software last year, that means it’s time to track down this year’s EHR subscription receipts.

Create a checklist with tax deadlines

Getting all your tax deadlines listed in one document makes it easier to track them, and ensures you have all the forms ready you need in order to file.

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First, check out our list of tax deadlines for therapists. Then prepare your customized list. Your precise deadlines will vary according to whether your practice is a sole proprietorship or an S corporation. If you have employees or contractors, expect further forms and further deadlines.

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This is also a good time to check the deadlines for your state taxes, including your LLC filing.

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Do your research (and take notes!)

If there’s anything you’re unsure about—whether it’s the basics of filling out a Form 1040 when you’re a sole proprietor, or it’s how to deduct tax credits—do your best to find an answer to the question rather than leave it hanging.

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Sure, you could create a list of questions to ask your accountant. But answering some of those questions yourself helps you move forward with tax prep tasks ASAP, and creates less work for you once tax season arrives. 

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True, not all questions are easily answered. If you’re unsure about a tax deduction gray area, for instance, you’re better off talking to your accountant before making your own decision. But at least by researching the matter you’ll get to see different perspectives, and have some idea which questions to ask when the time for your meeting comes.

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Check out the recording of Heard’s tax season prep webinar to get started.

Gather and organize receipts

If you do your own bookkeeping, and you’ve fallen behind, you’ll need to catch up before you can file your taxes. That may mean reviewing your expenses in the form of receipts.

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But even if your bookkeeping is up to date, you’ll need receipts to back up every business expense over $75 you deduct from your taxes.

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Why? Because the statute of limitations on tax returns is 6 years. Meaning that, during an audit, the IRS can technically go back as far as 6 years and request receipts for every business expense you’ve claimed. 

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If you can’t provide receipts, the best case scenario is that you’ll have to pay back the cost of the expense to the IRS. In a much worse case scenario, the IRS may determine you’ve committed fraud by dodging taxes.

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So make sure you have all the receipts you need to back up your claims, and get them organized according to expense type. That way, if you do end up having to prove your expenses, the process is faster and easier.

Bring your general ledger up to date

Whether you do your own bookkeeping or you’ve outsourced it to a professional bookkeeper, one thing is certain: You need up-to-date books before you can file your taxes.

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That means your general ledger should report every transaction up to and including December 31st of the present year. You’ll use those ledger entries to generate your year-end financial report, which gives you the information you need to accurately file your taxes.

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If you’ve fallen behind on bookkeeping, you may console yourself with the fact that December 31st is still months away. You have plenty of time to catch up, right?

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But the longer you put off catching up, the bigger the job will become. And the end of the year is sure to arrive faster than you expected.

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So get started now. Note: Heard provides catch up bookkeeping services.

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Review each tax form well in advance

Even if you have an accountant filing your taxes for you, take the time to review each tax form your practice is required to file. You don’t need to go over each one with a fine-toothed comb, but you should have a general sense of what each tax form does. 

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For instance, if your practice is an S corp, you’ll be filing both a Form 1120S (your S corp’s tax return) and a Form 1040 (your personal tax form). But if your S corp is a pass-through entity, and all its income and expenses pass through to you personally, why do you need two tax forms at all?

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Being able to answer questions like this will make conversations with your accountant more straightforward. And they’ll give you a better idea of how your business works. Hint: This particular example has to do with S corp shares and distributions.

Reassess your business expense deductions

Review your therapy practice’s deductible business expenses, and try to answer these questions:

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1. Are you deducting any expenses this year that you didn’t deduct last year?
2. Have any of your recurring expenses significantly increased or decreased?
3. Is the way you’re calculating your deductions still the best approach?

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In the case of 1, if the answer is “yes,” you should do the necessary research to make sure you know how to calculate the deduction and report it.

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For 2, this would be a good time to assess why exactly your recurring expense—eg. rent, utilities, software subscriptions—may have increased or decreased, and anticipate how that could impact your taxable income.

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And in the case of 3, there are some deductions (e.g. the home office deduction) that may be calculated and reported multiple ways. It’s usually to your benefit to choose the calculation method that results in the biggest deductible expense. 

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Reviewing these expenses periodically—particularly if they’ve increased or decreased—is a good idea, so you can be sure your calculation method is still the best.

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Clear your AR or AP

If you use the cash basis method of accounting, skip this step.

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Collecting on your accounts receivable (AR) and paying off your accounts payable (AP) means there are no loose threads hanging when the year comes to a close. If you tend to fall behind with either of these accounts, now is a good time to catch up and start a habit of staying caught up.

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In some cases, it may benefit you to delay collecting AR until the year has ended. Doing so means you report less taxable income for the year, deferring it until next year. Before you go this route, make sure the clients you’re collecting from won’t be inconvenienced by the delay, and be as transparent as possible as to why you’re delaying.

Reassess your personal deductions

When it comes to your personal taxes (Form 1040), you have the option of either itemizing your deductions or claiming the standard deduction.

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Your eligible itemized deductions may change from year to year. If you spend more on medical or dental expenses than you have in previous years, for instance, you may find you’re eligible to claim more itemized deductions.

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Take the time to review a list of itemized deductions. If your total deductions add up to more than the current standard deduction, you’re better off itemizing them—and vice versa.

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—

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The exact steps for paying state income tax vary from one state to the next. Here’s how to pay income tax in every state as a therapist.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

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Bryce Warnes is a West Coast writer specializing in small business finances.‍

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