As the days grow long and hot and poolside beverages beckon, tax season is probably the last thing on your mind. 

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But taking time in summer for a mid-season tax checkup can mean a major payoff when the year comes to a close.

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By now, you should be able to get a good grasp on how your annual budget is playing out. Plus, with clients leaving on vacation, finding a few spare hours to devote to admin becomes easier.

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Here are eight steps to completing a comprehensive mid-year tax checkup for your therapy practice.

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Create year-to-date financial reports

Your regular financial reports—your profit and loss (P&L) statements, balance sheet, and (if you use the accrual accounting method) cash flow statement—give you a month-by-month or quarter-by-quarter overview of your practice’s financials.

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Year-to-date (YTD) reports track your financials from the beginning of the year up to the present. So, if you generate a P&L on July 17th, and it’s YTD, it will tell you everything your business has earned and spent up to that point.

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If you’re using accounting software to manage your books, it should be able to generate YTD statements for you. Other solutions, like Heard, provide you with a YTD any time via your user dashboard.

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With a YTD, you can:

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• See how your financial projections for the year match—or fail to match—with reality.
• Update your budget and revise your financial projections as needed.
• Make adjustments to your spending and earning so you can meet your goals.

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Checking out your YTD financial reports is less about preparing for tax season than making sure your practice is on the right track financially to be successful. But it does help you avoid any nasty surprises when December 31st comes around, your books close, and you get your end-of-year financial reports.

Refresh your financial projections

Creating financial projections for your therapy practice is a smart idea because it helps you look into the future and prepare. 

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You can take into account expected changes in spending, like rent increases or reduced principals on loans, and factor them in when you allocate funds.

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And you can try to predict, based on past performance, whether your revenue is likely to increase or decrease, and what effect decisions like increasing your rates or offering sliding scale rates are likely to have.

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This is your chance to look at how the year has gone so far and update projections. Maybe you raised your rates at the beginning of the year, but a few clients have left and you haven’t replaced them; that could mean you’re earning less than you expected. Or maybe you broke your office lease, cut your losses, and switched to 100% remote sessions—a move that could have major effects on your expenses.

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Updating your projections now helps you prepare for the next year, and prevents unpleasant surprises come tax time.

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Plus, when you calculated your quarterly tax payments for the year, you (most likely) based them on what you earned the year previous. Updating your financial projections can give you a clearer idea of what you’ll actually be reporting as income for the current year, so you have a better idea of whether you’ll owe extra taxes or receive a refund.

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Update your budget

Having a budget for your therapy practice is important because it helps you allocate funds and plan how much you’ll earn and spend in the future. But it’s also a learning tool, helping you get better at anticipating your business’s needs.

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In writing, your budget should include blank spaces where you can fill in the actual amounts you spend and earn, and compare them to your projections. 

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For instance, suppose you create quarterly budgets for your therapy practice. You planned to spend $300 on internet bills in the first quarter, but you had to upgrade to a more expensive plan; the total expense turned out to be $350.

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After the end of the first quarter, you should go back and enter that $350 next to your originally budgeted $300. Why? Because it lets you create a history of your expectations versus what actually happened. Going back and looking at previous years’ (and quarters’ and months’) budgets helps you learn how to budget more accurately in the future, so you’re in greater control of your business.

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That’s the ideal, anyway. In the course of running your practice, it’s all too easy to get swamped with other work, and forget to update your budget. Make it a priority during your mid-year tax checkup to do so—the extra effort will pay off.

Consolidate and organize your records

Any expense you plan to deduct from your taxes needs to be backed up with valid records. Typically these records take the form of receipts for items you bought or services you paid for. 

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In the event you’re audited, the IRS wants proof you actually paid for the expenses you deducted. If you deducted $200 from your taxes for the new, ergonomic office chair you bought, but you don’t have a receipt, then—in the eyes of the IRS—there’s no way to prove you really incurred that $200 expense. 

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You’ll be penalized by the IRS. And if the expenses you incurred were especially large and you can’t support them with receipts, you may even be charged with fraud.

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The statute of limitations on tax returns is up to six years, so you need to keep all records of expenses for at least six years after you incur them.

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It’s tempting to keep all those receipts in a shoebox under your desk, but that’s a bad idea. For one, if you need to catch up on your bookkeeping, that means going back and digging through your heap of receipts so you can record your expenses.

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For another, if you do end up being audited, sorting through years of disorganized receipts will only make the process more tedious and painful.

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Take time during your mid-year tax checkup to organize your receipts by date into expense categories. Tools like Heard’s built-in receipt uploader make the process easier: simply take a photo of each receipt you need to record, upload it to the cloud, and categorize it. You’ll save yourself time in the future, as well as a lot of potential headaches.

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File a late S corp election

This is a quick one: if you planned to elect S corp status this year, but forgot to do so, go ahead and file a late election now.

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Technically, you have a little over three years to go back and file a retroactive election for tax purposes. But the sooner you file your late election, the easier it will be getting it approved.

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Check out our guide on how to file a late S corp election for therapists for a complete rundown.

Catch up on bookkeeping

Far too many solo therapists—especially ones new to private practice—treat tax season as bookkeeping season.

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Meaning, they wait until the year ends to go back and total up their expenses and revenue, often skipping the step of creating detailed financial records and reports in the process. Then they bring a handful of receipts and some scribbled-down notes to their accountant for tax filing.

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But bookkeeping doesn’t just give you the information you need to file your taxes. It provides you with an ongoing play-by-play of how your business is performing. You can look at your books and see how much you’re earning and spending, so you can spot trends, avoid nasty surprises, and adjust course as necessary.

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Your books are only useful if they’re up to date. If you haven’t entered any expenses or revenue in the past three months, looking at your books won’t give you an accurate picture of your business, or help you make important decisions.

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It’s okay to fall behind. After all, you went into business because you want to help people as a therapist, not because you loved the idea of doing your own bookkeeping. But make sure to take time during your mid-year tax checkup to catch up on bookkeeping, so you’re on track to have a complete, accurate set of books at year-end.

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Doing so won’t only help your business perform, it will make that trip to the accountant’s office much less painful.

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Oh, also: Heard handles bookkeeping and accounting for therapists. So your books are always accurate and up to date, and your taxes are always filed on time. If you hate doing your own bookkeeping, check us out.

Review (and reduce) expenses

So you buckled down and caught up on your bookkeeping, and you have complete and accurate records of everything you’ve earned or spent this year. Right?

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Right?

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Good. Now you can use that information to go back and tighten up expenses.

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Unless you’re a born penny-pincher, there’s a good chance you have some expenses on the books that could be reduced. 

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That could mean buying fewer potted plants for your office, and just remembering to water the ones you already have. Or it could mean ditching your office entirely, and going fully remote.

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Whether the changes you make are big or small, taking time to adjust your expenses halfway through the year is always a smart move. Saving just a few dollars per month by cutting back on unnecessary expenses gives you that much more cash you reinvest in your practice effectively, or build up savings in case of any unexpected shortfalls.

Set a calendar reminder to book a meeting with your accountant

Set a reminder in your calendar three months in the future reminding you to call your accountant.

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In three months, it will be fall, with tax season just around the corner. That’s a good time to call your accountant and book an early appointment to file your taxes.

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Why? Tax season is the busiest time of the year for accountants. By the time January and February roll around, your accountant is guaranteed to be slammed with work. They may not have time to see you until March or even later.

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Provided you have all the information you need to do so, it’s always better to get your taxes filed sooner rather than later. The longer you leave it, the longer you’ll be in limbo, without the information you need to calculate quarterly tax payments or make other important financial decisions.

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When your reminder pops up three months from now, pay attention, and give your accountant a call. You won’t regret it.

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Summer is often a good time to do a tax checkup because of the dreaded summer slowdown—when clients go on vacation and your schedule grows scant. Feeling the squeeze? Check out our article on how therapists can weather the summer slowdown.

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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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