Tax season often prompts questions about the qualifications and capabilities of tax professionals. In this landscape, two prominent designations emerge: Enrolled Agents (EAs) and Certified Public Accountants (CPAs). Understanding the differences between these professionals is crucial to making informed decisions when seeking tax services.

 

The Enrolled Agent (EA)

An Enrolled Agent is a tax specialist authorized by the U.S. Department of the Treasury to represent taxpayers before the Internal Revenue Service (IRS). Their expertise encompasses a broad spectrum of tax-related matters. Here’s a breakdown of what an EA brings to the table:

• IRS Authorization: EAs undergo a rigorous examination process administered by the IRS. This includes taxation and representation practices, ensuring their comprehensive understanding of the U.S. tax code.
• Tax Expertise: EAs specialize in tax-related issues, ranging from preparing tax returns for individuals and businesses to offering guidance on complex tax matters. Their focus lies solely within the tax domain, making them specialists in this field.
• IRS Representation: EAs can represent clients in front of the IRS for audits, collections, and appeals. Their knowledge extends to navigating IRS procedures and advocating for clients’ interests effectively.

 

The Certified Public Accountant (CPA)

Certified Public Accountants, on the other hand, possess a broader scope of expertise that includes accounting, auditing, and taxation. While they are qualified to offer tax services, their focus is not solely on taxation. Here’s what distinguishes CPAs:

• Versatility: CPAs are skilled in various financial areas beyond taxation. They handle accounting, financial planning, auditing, and more. Tax services are part of their repertoire, but they may not specialize exclusively in this area.
• Professional Certification: CPAs must pass the CPA exam and meet specific state requirements to earn their license. Their education and training cover a range of financial disciplines, giving them a holistic understanding of business and finance.

 

Understanding the Difference

When it comes to seeking tax-related services, understanding these distinctions is pivotal:

• Specialization: EAs are specialists in tax matters, dedicating their expertise solely to the complexities of the tax code and its application. Their deep understanding of tax law enables them to provide targeted advice and support.
• Representation: EAs are uniquely qualified to represent clients before the IRS, making them invaluable in cases of audits, appeals, and negotiations with tax authorities.
• Holistic Approach: CPAs offer a broader range of financial services beyond taxation, making them a go-to option for businesses requiring diverse financial expertise.

 

Conclusion

Both EAs and CPAs bring valuable skills to the table, but their areas of expertise differ. EAs shine in the realm of taxation, offering specialized knowledge and representation before the IRS. CPAs, with their diverse financial skills, cater to a broader spectrum of financial needs.

Choosing the right professional depends on the specific requirements of an individual or business. Recognizing the unique strengths of each designation ensures that clients receive tailored and comprehensive financial guidance.

When seeking tax-related assistance, understanding these differences empowers clients to make informed decisions and leverage the expertise that best suits their needs.

These are the absolute most common tax & bookkeeping mistakes we see private practice owners making. If you see something on this list that applies to you or makes you feel something, it’s okay! We’d suggest taking some time to reflect on those thoughts or feelings.🤔🤔

We’re here to educate and support you because  ‘How to operate a business’, ‘Bookkeeping 101’ and ‘Tax 101’ weren’t part of grad school.

 

Most Common Mistakes We See Private Practice Owners Making:

✖️Not paying estimated taxes or underpaying

✖️Thinking client management/billing software (EMR/EHR like Simple Practice/Theranest/Fusion) doubles as bookkeeping software or is sufficient enough records for an audit, getting a loan, or tax preparation purposes

✖️Under reporting gross income on accounting records and tax returns, AND losing out on a great tax deduction…. Credit card fees!🤑🤑

✖️Asking for tax and bookkeeping advice from unqualified sources like social media groups or colleagues🙅‍♀️

✖️Not using dedicated business bank accounts

 

Let’s dive into these things in a little more depth👇

✅ Estimated taxes are….complicated! We get it! If you’re at least paying something each quarter, that’s great! But even if you’re paying something, but not remitting enough each quarter, the IRS can penalize you. To avoid this, you really should work with a professional who can provide you with LIVE tax estimates each quarter. Live meaning they take your actual income made in your practice, along with any other household income, and use that data to project your taxes due each quarter to state and federal. At our firm, this is how we project our tax estimates for our clients so they aren’t left with a surprise annual tax due balance or penalties for underpaying.

✅Your client management and billing system (Simple Practice, Theranest, etc) is NOT accounting software and cannot double as a billing and bookkeeping system. Your client management system does not accurately track all income and it definitely does not record your expenses, assets, liabilities, or equity. Real accounting records, which you’ll need for tax preparation purposes, IRS audits, and to secure any loans (like a business loan or for proof of income if you go to buy a house or car), will consist of at least a Balance Sheet which reflect the company’s assets, liabilities, and equities of your company and an Income Statement (Profit and Loss) which reflects your company’s gross income, cost of services, expenses, other income, and net income. And if you’re thinking your client management system will suffice for showing income and your bank account statements for showing your expenses, think again! Only up to date, accurate accounting records and financial reports are going to support you during loan processing and approval, tax preparation, and audits. Besides all of that – up to date, accurate accounting records and reports are the only way to truly understand the full financial story of your company; what you’re making, how much you’re spending, what are you spending it on, how much money is left over, and how profitable you are! You’ll never be able to get that full picture just from looking at your client billing system or your bank account!

✅Losing out on the credit card fee tax deductions and underreporting income… we see this mistake SO SO much! We even see it all the time from other ‘bookkeeping professionals/firms’, costing our clients a lot of money in missed deductions and inaccurate income numbers on the accounting records that won’t match up with the 1099 they receive (🚩can anyone say IRS red flag!🚩). It’s really important in your bookkeeping and accounting system that you’re recording the total gross amount you billed your client, not the amount after the credit card processing fee was deducted. Then, you need to also carefully record the credit card fee expense to ensure you’re not missing out on that tax deduction. This way, you’re recording the true total income, expense, and net income amount received!💪

✅I’m just going to come out and say it! Please stop asking for tax and bookkeeping advice in facebook groups for therapists and asking your colleagues who also own their own private practice!! I know it’s free advice, I know they may have more experience with entrepreneurship, but that does not make them qualified to give you tax and bookkeeping advice. Just like we are not qualified to hold a therapy session with one of your clients or treat your clients! We have the honor of being involved in a lot of wonderful facebook communities for therapists, and the ‘advice’ being freely given on tax and bookkeeping is always incorrect. The biggest thing to remember as well is that YOUR company and YOUR personal tax situation is never going to be the same as anyone else. Taxes and bookkeeping are so incredibly unique to each individual taxpayer, each individual company, and each of the 50 states. Only someone who is privy to all of those intimate, sensitive details is truly going to understand your full tax and bookkeeping situation and be able to adequately provide you with accurate advice and information. Please make the investment in yourself and the wellbeing and success of your company to work with someone who will truly get that full picture!❤️

✅As a business owner, even if you’re a sole proprietor or your business isn’t registered with your state, you need to setup dedicated business bank accounts and credit card accounts. Your business income, even if it passes through onto your personal tax return, is still income you earn separate from what the IRS considers ‘personal income’. When you use personal accounts for business expenses or receiving business income, that’s called ‘commingling business and personal funds’, and the IRS gets really cranky about co-mingling if they ever have to perform an audit. It really blurs the lines between what is actually a business expense and what’s a personal expense. If you use a personal credit card for your Amazon purchases, and those expenses can be for business or personal, how is the IRS supposed to know that and be able to differentiate between them? And how are YOU supposed to be able to remember which ones were which as well? It’s probably going to be really difficult. You want to have a dedicated business account(s) where only your business income is going into it and only business expenses going out! This avoids commingling and makes it a lot easier for you to manage your business finances!

🦄🦄If you’re ready to give up your (unpaid) part-time position as the bookkeeper and tax person at your private practice and get back to what you actually want to do ❤️ we’d love to have you apply to work with us here. ❤️Like our glowing review from our client, Liz, we’d love to ‘exceed your expectations and take a lot of time and stress off your plate’ as well!🦄🦄

👋👋At Therapeutic Bookkeeping, we’re not your typical, rigid tax & bookkeeping firm! We’re a husband and wife duo firm who truly take pride in our services and supporting our clients on being confident, profitable, passionate private practice owners with a positive money-mindset!

We work exclusively with therapists all over the United States offering top-notch, industry specific tax preparation, tax planning and advisory, bookkeeping, and much more!👋👋

It’s everyone’s favorite topic… taxes! For most business owners, this is a stressful and overwhelming time. But it doesn’t have to be! With the proper planning, filing your taxes can be a total breeze. 😎

The more prepared you are to file your taxes, the easier it’ll be on both you AND your tax preparer. It’s all about helping them understand how your business ran the previous year, so you get the maximum deductions and pay the least possible amount in taxes! 

In this blog, we’re covering how to get your practice prepared by doing things like:

• Organizing your financial records
• Gathering necessary tax forms
• Evaluating potential deductions and credits
• Considering estimated tax payments
• Seeking professional advice

You might not be able to completely avoid the stress of tax season, but by following this handful of tips every year, you can definitely eliminate some of the headache!

Organize your financial records

When it comes time to prepare your taxes, you’ll need to have all of your financial records organized, up-to-date, and easily accessible. This includes not only your income and expense records, but information on all the types of deductions and credits you may be eligible for.

You’ll need to collect records for the past year, such as tax forms, business transactions, investments, and other documents. It’s a good idea to create a digital filing system that keeps your personal and business expenses separate (SUPER important not to mingle those two!). 

Accounting software is SO helpful when you’re a busy business owner, too. Something like QuickBooks Online is a great solution for those who still want to do their own bookkeeping OR want to outsource it to a professional at some point.

If you’re behind on bookkeeping, it’s always a good idea to have a pro help you get caught up so you’re ready to roll when taxes are due (psst… This is kind of our thing, we’d love to meet and see how we can support you!).

How you structure your practice can make a big difference when it comes to taxes. According to the Small Business Administration, sole proprietors and partners in a partnership should record income and expenses on an annual basis. Limited liability companies (LLCs) and corporations will have to file taxes each quarter. Make sure you have the appropriate records in order so that filing is simple and organized.

Wondering if your practice should be an S Corporation or an LLC? Read: How To Know When It’s Time To Become an S Corp.

Gather necessary tax forms and information

Before you start filing your taxes, you’ll need to collect all of the necessary documents, forms, and information. Gather any relevant forms related to filing your taxes, such as W-2s, 1099s, income statements, expense reports, and any other business-related records or transactions.

If you are unsure what documents to collect or want to know more about your deductions and credits, get in touch with a tax professional (aka your favorites here at Therapeutic Bookkeeping)!

Here’s a handy tax form checklist for reference for a few of the most common documents you will need to have ready for tax preparation:

• W-2s
• 1099s
• Income statements
• Expense reports
• Balance Sheet

Evaluate potential deductions and credits

It’s also SUPER important that you understand the potential deductions and credits you may be eligible for. Deductions reduce your taxable income, while credits reduce the amount of taxes you owe. 

Deductions can include expenses related to a business, such as office supplies, travel, and home office deductions. 

A few common deductions for therapists include: 

• Therapy Session Supplies
• Supervision costs
• Continuing education, training, and networking events
• Tech subscriptions and internet
• Office rent/utilities
• Insurance
• Professional services (bookkeeping pro, lawyers, etc.)
• Marketing expenses
• Office supplies

Keep in mind that tax laws change from time to time and you may be eligible for additional deductions or credits. Make sure to research new tax laws and speak with a tax professional to make sure you are taking full advantage of all the deductions and credits you may be eligible for.

Consider estimated tax payments

LLCs are typically required to pay estimated taxes each quarter. Estimated taxes may be paid when the due date for taxes approaches, but it’s a good idea to start saving for taxes early. 

Depositing a set amount into a separate bank account designated for taxes throughout the year can help ensure you are prepared to make estimated payments when the time comes. If you’re not sure how much your estimated tax payments to federal and state should be each quarter, use last year’s tax liability as a reference. But we highly recommend you work with a tax professional to estimate these amounts for you each quarter using the actual income you made each quarter in your business and total household income. At Therapeutic Bookkeeping we offer our bookkeeping clients the add-on of Quarterly Tax Estimates and it’s our most popular add-on service as well as hugely beneficial to ensuring our clients avoid a large, surprise tax amount due come tax time! 💪

Keep in mind that failure to make estimated payments may result in a penalty, so plan ahead and save. Once you have a good estimate of what you’ll be paying in taxes, setting up automatic transfers between bank accounts is a great way to make sure you’re prepared when it comes time to pay.

 

Seek professional advice

Preparing your taxes can be complicated, especially if this is your first time filing for your practice. To make sure you’re filing correctly and taking full advantage of all available deductions and credits, lean on a tax professional. A tax pro can help you understand the latest tax laws, ensure that you are in compliance with IRS regulations, and properly file your taxes.

Basically, we make the whole process a hell of a lot simpler than if you were to DIY 😉

Being fully educated on the current tax code will help minimize your tax bill and protect you from any ‘consequences’ for filing incorrectly. Even if you prefer to file your taxes on your own, it’s always a good idea to consult with a tax advisor to double-check that everything’s in order before filing your taxes.

With a little preparation and planning, filing taxes for your practice can be (mostly) painless. Be sure to organize your financial documents, gather necessary forms, evaluate deductions and credits, make estimated payments, and consider seeking professional advice.

Following these steps will ensure that your practice is prepared and your taxes are filed on time and accurately. Make sure to give yourself *plenty* of time to file if you don’t want to pay late fees!

If you’re ready to work with a tax professional for filing your business and individual taxes and who understands your business and industry, we’d love to have you apply to work with us HERE!

If you’ve been thinking about filing an S Corp election for your practice, you probably have a few questions about whether or not it’s right for you before making a decision. You might already know the benefits of an S Corp, but it’s not the best solution for everyone!

Take some time to consider ALL the pros and cons before choosing to become an S Corp. ⏰

Whether you know a lot or a little about S Corporations — we’ll be shortening that to “S Corp” for now — this blog will give you more information about:

          👉What an S Corp is and why it matters

          👉Things to consider before electing S Corp status

          👉The benefits of being an S Corp

          👉How to know when you’re ready to switch

And if you’re ready to get your questions answered by a professional about if YOUR practice is a good fit to elect S Corp status, we’d love to have you apply to work with us at Therapeutic Bookkeeping!

 

What is an S Corp?

An S Corp is a business structure, like an LLC. The biggest difference between it and other business structures is that the income and losses flow through the company to its shareholders (even if you’re the only one). 

This means only the shareholders pay taxes on the company’s income and the S Corp avoids paying the dreaded double tax on its corporate income. More on that later! 🙂

While this sounds like a no-brainer, there are several factors to consider when choosing whether this business structure is a good fit for your practice. How profitable your practice is, how many shareholders the company would have, and your own personal financial situation are all important things to think about.

 

Requirements for Electing S Corp Status

Before you can even consider becoming an S Corp, you’ll have to meet requirements set by the IRS (read more about that here).

Even if you meet the IRS requirements for election, your practice still might not benefit from becoming an S Corp, so it’s important to do all your research and consult with someone👋 who can analyze your financial situation first.

 

What You Need To Know BEFORE Becoming an S Corp

S Corps carry significant benefits, but there are a few things to consider before you make that decision for your practice.

Given the amazing tax benefits, an S Corp can’t have more than 100 shareholders. Most likely, your private practice won’t be affected by that, but it is something to keep in mind. If you do happen to have more than 100 shareholders, a C Corp would be a better option.

Another thing to consider before making the switch is revenue. You might have heard that if you are making more than $50,000 in net profit, then you should consider an S Corp. While this is a good rule of thumb, it’s not the only financial item to consider. 

Tax liability varies for those filing as a married or single person. If you plan on filing as a single person, you are likely to have more tax liability, and your profit threshold may be higher than $50,000. If you have a second source of income that pays you through a W2, it may put you in a higher tax bracket and offset some of the benefits of S Corp designation. Children and dependents also have an impact on your tax situation. 

With a more formal corporate structure, you’ll need to keep more formal records. The most important change you’ll have to make? Payroll. All shareholders — including yourself — must be on the payroll and paid a reasonable salary. (If you need help with your payroll management, we LOVE Gusto! 💰(Note: This is an affiliate link for Gusto, which just means that if you sign up using our link, we’ll get a commission at no additional cost to you.).

This is where a lot of people get tripped up because they need to know what a “reasonable salary” would be according to the IRS. You can’t just put yourself on payroll at $12k per year and call it a day, I wish it were that simple! 🤣

Your bookkeeping records will also need to be rock-solid and done by a professional. And it’s important to have a bookkeeping professional in your corner who not only understands the therapeutic industry, but also the nuances of an S Corp in order to accurately maintain your bookkeeping records. (Psst, that’s us here at Therapeutic Bookkeeping!)

 

The Benefits of Becoming an S Corp

👍Limited Liability Protection

There are several reasons to want to designate your practice as an S Corp. If you operate your practice as a sole proprietor, and the practice were to have debts or liabilities, assets such as your home or personal savings would be vulnerable. S Corps provide the business owner(s) with significant protection of these personal assets.

💸Avoid Double Taxation

Unlike other corporate structures, an S Corp is immune to tax at the entity level. All of your practice’s profits and losses get passed directly to the shareholders. The shareholders would then pay taxes on them individually. This helps avoid taxation at both the entity and individual level – aka the Uncle Sam special, double taxation.

🤑Tax Savings

One of our favorite benefits associated with S Corps is that you’re going to avoid the self-employment tax. Instead, you’ll be responsible for payroll taxes through your W2!

👍Increased Credibility

When compared to a sole proprietorship, an S Corp can give your practice more credibility with banks and other businesses. This could make it easier to get a loan — both personally and professionally. 

Clients have even mentioned that providing proof of income when securing a home loan is much easier with a W2 from their S Corp than bank statements from their sole proprietor days!

 

Frequently Asked Questions About Applying for an S Corp

When is the deadline to submit my application?

The deadline to file Form 2553 with the IRS is March 15th every year. 

Note: If you plan to elect S Corp status within your first year of business, you have 75 days from the date of incorporation to apply, otherwise, you’ll have to wait until the following year for it to take effect on your taxes.

 

What if I miss the deadline?

If you can believe it, the IRS might actually give you a little grace in some cases! If for some reason you miss the March 15th election deadline, you might have to provide an explanation to the IRS as to *why* you were delayed. And they’ve been known to forgive the delay for reasons like:

🤷 “I didn’t know there was a deadline.”

Or

🤷 “I didn’t know there was a form to submit.”

And of course, it’s always on a case-by-case basis, so I can’t guarantee that these explanations will work for you. The IRS can and will request as much information as they see fit before making a decision 😆

 

How long does it take to get confirmation?

If you’re planning to elect S Corp status, just know that you could be waiting for several months to hear a response. The IRS will mail you confirmation within 3 months to let you know the status of your application.

If you haven’t heard back after 3 months, it’s recommended that you reach out to the IRS and try to speak with an agent. Put on your favorite movie and settle in, because the wait times to speak to a human can range from 30 minutes to 2+ hours, especially during tax season ⏳

Here’s the contact number for the IRS just in case: 800-829-0115. After you select the language you want, select option #3 for ‘All Other Business Notices and Letters’.

Is Your Practice Ready To Make The Switch?

Before you make any decisions about the future of your practice, have a chat with someone that you trust. They can help determine if the financial incentives are worth the switch, and if your practice has the proper structure for S Corp designation. 

If you think the advantages of an S Corp are worth it compared to an LLC or sole proprietorship, your tax professional will be your best friend. The current version of Form 1120S, which you are required to file with the IRS, is 47 pages long. If the idea of doing that on your own gives you hives, you’re not alone! 😬

Electing to be an S Corp carries a ton of benefits. Avoiding double taxation and self-employment taxes can make a huge impact on your practice’s finances. You could also be seeking a business or home loan and need the added credibility of an S Corp and the W2 it provides. But there’s no one-size-fits-all solution for everyone when it comes to business structure.

Finding a bookkeeping and tax firm that specializes in mental health private practices AND can support you in making this decision about if becoming an S Corp is right for you doesn’t have to be a headache. We’re here for you at Therapeutic Bookkeeping!!

 

Every business owner’s situation is different. This blog cannot and should not be taken as legal, tax, bookkeeping, or financial advice. Speak with an expert about your specific situation before making a decision about whether or not to elect S Corp status!