June 26, 2020

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The Most Common Tax Challenges For Therapists (And How To Solve Them)

As you read this article, keep in mind that the fear some people feel when talking about taxes or other financial topics is far more common than you might think. You are not alone! Many people from all industries, ages, and social backgrounds are not fond of tax, accounting, or money topics.

Before I begin, let me clarify that I do not pretend to be an expert on the psychological or emotional impact taxes have on people. I will leave that part to you.

I can, however, provide some insights based on what I have learned over my career from observing and speaking with a variety of my tax and accounting clients who happen to be therapists.

As you read this article, keep in mind that the fear some people feel when talking about taxes or other financial topics is far more common than you might think. You are not alone! Many people from all industries, ages, and social backgrounds are not fond of tax, accounting, or money topics.

Below, I will share some common fears and concerns clients express about the way they feel when it comes to personal and business finances.

1.     Not comfortable managing business finances

Let’s face it. You are busy helping people,  researching, and providing guidance.  The mere thought of learning how to incorporate bookkeeping best practices or apply tax credits and deductions can be overwhelming.

o   What can you do about this: Find a tax or accounting professional who will take the time to help you establish a bookkeeping process which will be easy for you to maintain. He or she should also be willing explain in simple English the key factors impacting your tax situation.

Although you might be tempted to hand off all your tax responsibilities to someone else, it is in your best interest to gain some understanding of what goes into your tax return. This will prepare you to ask questions when something doesn’t seem right.

2.     Not being able to keep finances organized

As if having to do bookkeeping tasks and filing tax returns weren’t enough, private practice owners have to deal with records of receipts, invoices, time sheets, tax deductions, and the list goes on. All of these to-dos are time-consuming and not fun for most people.

o   What can you do about this: You can get ahead of the game by doing your bookkeeping in Excel, or implement a tool like QuickBooks, Wave, or FreshBooks.

It might be a good idea to use receipts app and a cloud service to save important documents. I personally use a cloud service to store both documents and receipts in order to minimize the number of applications I use.

The other thing to remember is that, no matter how good a tool is, the discipline you need to develop to stay organized is as important as the tools. Set time aside at least monthly to organize your financial files, update your cash flow budget and perform bookkeeping tasks.

3.     Cash flow concerns when paying quarterly estimated taxes

A lot of business owners have revenue streams which fluctuate from month to month. As a result, many of them find it hard to pay their estimated taxes on a quarterly basis because of concerns that not enough cash will be available for their other expenses.

o   What can you do about this:  With a little planning and a little help from your CPA, you can create a simple cash projection and use it to help allocate funds to various projected expenses (including taxes), during periods when revenue is higher. Being able to see on paper how the cash you make throughout the year can cover all your projected costs will take away the anxiety of not knowing what to expect.

4.     Not knowing what tax deductions and tax credits you might qualify for.

With the recent changes in the tax laws, it’s common to hear this concern among business owners.  It’s not easy to keep up with the changes, and it’s even more difficult to interpret them.

o   What can you do about this: It might help to do some research on your own. The idea is to have a level of knowledge or awareness to allow you to initiate a conversation on the topic when searching for a CPA or discussing deductions and credits with your existing CPA. You can also ask your CPA to give you a list of the tax deductions and credits you and your business might qualify for, and then compare that to your own research.

5.     Paying too much in taxes.

Tax rates are based on your taxable income. The goal is to reduce your taxable income as much as possible by taking advantage of all the tax deductions and credits available. There are a few deductions I see business owners neglect quite often.

o   What can you do about this: Think of deductions beyond the normal business expenses flowing through your business’ account.  These include the home office deduction if your home is your primary place of business, self-employment insurance paid with personal funds, and a retirement plan to be funded by your business.

Remember the frustrations you might feel whenever you think of business finances are quite common, but with a little bit of planning and discipline, these can be minimized. Find a professional that you can work well with, and implement processes that are easy for you to follow and keep up to date.


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About the author

about the author:

Ramona Cedeno is the Founder and CEO of FiBrick, an accounting and fractional CFO services firm. Through the many services and workshops her firm provides, Ramona enjoys and takes pride in her innate ability to bring people together to build community, and financially empowering women to build sustainable businesses. She is a proud mentor of the Women Entrepreneurs of NYC (WENYC) initiative where she leads mentor sessions and workshops aimed at helping women start and grow their businesses. Ramona holds the CPA and CFP® licenses.