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Want to make running your own therapy practice extra stressful? 

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Here’s a tip: Put off doing your taxes.

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When you put off tax prep until the last minute, you not only guarantee yourself a stressful tax season. You also create opportunities for bad planning during the course of the year, leading to all kinds of extra financial tangles. 

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On the other hand, when you make taxes a year-round routine, you significantly reduce the potential for end-of-year stress. Suddenly, thanks to some regular week-to-week maintenance, the end of the year becomes something worth celebrating rather than dreading.

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Here are nine reasons tax time is all the time when you’re a self-employed therapist, and steps you can take to make that time as productive as possible.

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Key takeaways:

• Make tax prep part of your regular routine to avoid the tax season crunch.
• Year-round tax prep also gives you business insights you can use to help your practice succeed.
• A little preparation now saves you a lot of stress later.

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Quarterly taxes never rest

• Quarterly: Pay taxes and review your income.
• Yearly: Review last year’s income to estimate this year’s taxes.

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Unless it’s your first year running your own practice, or you only practice therapy part time, you’ll need to pay your taxes in quarterly installments.

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If you miss or underpay an installment—in the eyes of the IRS, the two are one and the same—you could end up paying IRS penalties. And missed installments have the potential to snowball, as your unpaid balance carries forward (for bookkeeping purposes) from one quarter to the next.

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In order to meet your quarterly tax obligations, you need to budget. That means planning to set aside enough income each quarter to cover your tax obligations, while leaving enough cash on hand to cover your business expenses and your own salary.

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It also means that, if you’re following the safe harbor rule (paying the equivalent of what you paid in taxes last year, in quarterly installments) you need to track how much you’re earning; if your income is going to be higher than it was last year, you’ll have to pay extra to cover the taxes you owe after filing.

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For a deeper dive, check out our guide to quarterly estimated taxes for therapists.

Your budget is only as good as the work you put into it

• Monthly or Quarterly: Update and review your budget.
• Yearly: Set an annual budget.

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Many self-employed therapists—both those new to running their own practices, and those who have been in business for a long time—make a major mistake when it comes to their budgets.

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Once you’ve planned all the expenses you need to cover and projected your gross income for a certain period—whether that’s one month or one year—it isn’t enough to go ahead and use your budget as a guide.

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You need to report back. That is, you need to review your budget, and record whether your anticipated expenses and gross income match with what you anticipated. For more on this, check out our article on how to build a budget for your therapy practice.

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So what does this have to do with taxes? For starters, you need to anticipate your quarterly tax payments and make sure you have enough cash to cover them (see above).

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But updating your budget gives you the added bonus of seeing how your business is performing on a granular scale. It can give you insights a profit and loss statement can’t—into specific expenses, for instance, rather than expenses as a whole—and that helps you plan for tax time more effectively. 

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Therapists who don’t stay on top of their budgets not only tend to run into problems with paying the bills. By the time they need to file annual taxes, they have to do a lot of extra homework to plan business expense deductions and prepare for future tax payments.

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The shoebox method is bad for expense tracking

• Daily: Practice good recordkeeping.

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The “shoebox method” of tracking expenses is something of a cliche, hearkening back to the days when receipts, invoices, and virtually every other financial document were printed on paper.

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Today, you’re more likely to find an electronic receipt in your inbox, or a record of payment stored in your customer dashboard, than a paper receipt.

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The idea was that procrastinating business owners, rather than recording their expenses as they occurred and maintaining tidy records, would throw all their receipts into a shoebox. At the end of the year, they’d sit down and add up everything to determine their deductible expenses—a tedious, often confusing task.

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The drawbacks here are obvious: Whatever time you gain by not bothering to record expenses and file receipts is lost again when you have to sit down and pay catchup.

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But there’s a more serious danger lurking below the surface. In the event of an audit, the IRS can request expense records going back three years—and then another three years, for a total of six years, if they suspect fraudulent activity.

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That means you should plan to have six years’ worth of business receipts (for expenses over $75) carefully stored away. Long after you’ve crunched the numbers and claimed those business deductions, you may be asked to prove them.

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So expense tracking is a year-round task, just part of handling taxes when you’re a business owner. Our article on saving receipts for therapists will get you started.

Bookkeeping isn’t just about paying your taxes

• Daily: Update your books.
• Monthly and Yearly: Generate financial statements.

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One of the biggest benefits of having a comprehensive bookkeeping solution in place is that you have all the information you need to file your taxes at the end of the year.

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Year-end profit and loss statements and balance sheets give you the information you need to file, as well as anticipate next year’s business activities. And you can only produce them when your books are up to date.

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But bookkeeping serves another purpose: It gives you direct insight into how your therapy practice is operating. By reviewing your general ledger, you can see what is costing you money, and the income streams that pay off the most. By looking over financial statements, you can spot trends and avoid problems—from seasonal downturns to cash flow blockages—before they occur.

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Good bookkeeping needs to be up-to-date all year round. Playing catch-up in December so you can file your taxes deprives you of valuable insight that may mean the difference between success and failure for your practice. That’s what makes bookkeeping one more part of the “tax time all the time” strategy for your practice.

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Tax law changes may affect your bottom line

• Yearly: Review tax law changes.

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Tax law isn’t written in stone. At both the federal and state levels, tax law changes from one year to the next. Those changes may affect which business expenses you can deduct from your taxes, and how you do so. They may change which information you need to file, and the deadlines you need to meet. They may even affect where you need to file your taxes.

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At the same time, there are sometimes gains to be made by taking advantage of new credits or deductible expenses. By ignoring changes to tax law, you may be missing out on ways to save your practice money.

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The good news is that tax law changes are rarely earth-shattering. Plus, the IRS and state tax authorities typically publish changes well before they will affect your business.

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But that creates another year-round job for you as a business owner. It’s up to you to track tax law changes from one year to the next, and make sure you’re aware of any that affect your business. 

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It’s part of an accountant’s job to stay on top of changes to tax law. That’s one of the benefits that comes with hiring an accountant.

Your taxes and your retirement savings are connected 

• Monthly: Contribute to savings and investment accounts.
• Yearly: Review contribution schedule for the year ahead.

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Contributing to traditional IRAs and 401(k)s, as well as health spending accounts (HSAs), allows you to defer tax payments. That typically means income you contribute goes untaxed in the present year; you only pay taxes when you withdraw the funds later.

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You can use these accounts advantageously to reduce your tax burden, but in order to get the biggest benefit, it’s best to do so on a rolling basis. Money you invest in retirement accounts has the potential to accrue interest via investments. If you wait until December to decide how much you’re going to contribute, and then dump it all in at once, you’ll miss out on interest you could have earned on your money over the previous 11 months.

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To decide how much to contribute, and budget for contributions, it’s essential to keep on top of your current earnings and try to anticipate your tax bill. That helps you make the most of your retirement plan contributions.

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Learn more from our article on investing with variable income.

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You can’t run an S corp on autopilot

• Quarterly: File Form 941 

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If your practice is an S corporation, and you work as your own employee, there’s no way to get around ongoing tax duties.

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As an employer, your practice needs to file quarterly Form 941s reporting income withheld from your paycheck for the purpose of taxes. You may also be required to file other forms on a quarterly basis at the state level, depending on where your practice is based.

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(Naturally, you’ll need to do more work if you decide to hire other employees besides yourself.)

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If you’re a sole proprietor, you may have an easier time of it—since you’re not an employer, you don’t have to worry about these types of payroll taxes. But if you’re planning on electing S corp status some time in the future, you’ll have an easier time of it if you’re already taking care of other tax-related tasks—like bookkeeping and budgeting—on an ongoing basis.

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For more info, check out our tax prep checklist for S corp therapy practices.

Tax planning directly impacts spending

• Daily, Monthly, and Quarterly: Plan when to make large purchases and get the biggest tax benefit.

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As our complete guide to tax deductions for therapists demonstrates, there are many expenses you can claim as a self-employed therapist in order to lower your tax bill.

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But to make the most of those deductible expenses, you need to do some planning. While you don’t have much control over most (recurring) expenses—like rent, utilities, and insurance—other (non-recurring) expenses may be timed strategically. 

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For instance, if you need a new business phone or computer, are you better off making the purchase before the end of the year (to lower the current year’s bill) or waiting until next year (to lower next year’s bill)? The best move will depend upon your budget. But it will also depend upon your tax burden—and it’s impossible to know what that will be unless you actively track your income over the course of the year.

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Other cases where spending and tax planning connect include plans to expand your practice or move to a bigger location, or decisions about registering your business and electing S corp status. 

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Disorganization could increase your accounting bill

• Daily: Follow good bookkeeping and recordkeeping principles.
• Yearly: Prepare a financial package with year-end reports for your accountant.

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The more time your accountant needs to spend filing taxes for your practice, the more they will charge you. Even if your accountant charges a flat rate for business filing, serious disorganization on your end may result in enough extra work for your accountant that they add surcharges.

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For instance, many accounting firms charge extra fees for catch up bookkeeping. Note: Catch up bookkeeping is free when you sign up with Heard.

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And if you file your own business taxes, disorganization could cost you even more. Not only do you have the potential to incur IRS penalties if you make mistakes, but the cost of hiring an accountant to “fix” inaccurate tax filings could cost you more than it would have to hire an accountant in the first place.

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The more organized your taxes are—and the more you stay on top of tax duties over the course of the year—the more money you stand to save.

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First year filing taxes for your therapy practice? Check out our article on tax planning for therapists.

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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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