Therapists & Taxes: Do This BEFORE December 31st!

Updated December 7, 2023

We hear you. The last thing you want to think about while doing holiday shopping is paying taxes... especially since it might feel like taxes aren't something to think about until AFTER this year ends. 

However, as a business owner, the rules have changed. Actually, the rules have become more important! As you begin to make more of a profit in your business, the self-employment taxes REALLY start to add up. However, there are LOTS of ways to legally and ethically reduce the amount of taxes you owe. However, you only have until December 31st of this year to do it! 

Disclaimer: I am NOT a bookkeeper, accountant, lawyer, or CPA. I am just a business owner like you who has learned a few things that allows me to encourage you to run the numbers and call your own accountant! Here are some things accountant Mark J. Kohler has shared in trainings and free podcasts.

Time to Run The Numbers (Seriously) 

1. Now is the time to run the numbers of your gross profits, calculate your expenses, and get a clear picture of how much you might owe in taxes. I know it is tempting to wait until February or March... but there are things you can do NOW with an accountant that could save you on taxes that you cannot do after December 31st. You need a process setup where you can truly see your numbers and understand your monthly profit after expenses. Whether you use Quickbooks, Wave, or my bookkeeper Grow the Books, you need a process that allows you to easily and quickly see your numbers. After you get this set-up it should take less than 20 minutes to "do your books" each month or each quarter! Do you already have an option that works for you? Awesome- go use it! Ok- now that you have your numbers... 

Are You Paying Too Much in Taxes? 

2. If you netted over $70,000 in your business last year and you are still a sole proprietorship or an LLC with nothing else - you need to talk to a lawyer or an accountant. You may be able to save money by moving from a sole-proprietorship tax structure to a corporation tax structure (like an s-corp). (Yes- even after you pay a lawyer to file the paperwork and pay minimum corporate taxes). If you already know you are moving to an s-corp for 2024 the more expenses you can apply in 2023- the better! Why? Because you may be paying a higher rate of taxes this year than next year.

The tax code changed a few years and this all really is different from state to state. So, you want to talk to your CPA first and see what they say to get YOUR numbers. Here is what you should ask:

• What is my net tax rate for my business?

• Am I currently filing as a sole proprietorship or some other status?

• If I made the same amount next year and transitioned to an s-corp tax election, would I be able to save money on taxes even after the additional filing fees?

Want to run the numbers yourself first? Check out Gusto’s checklist and free S-corp calculator to see if it may save you on taxes in 2024.

We highly recommend you consult an attorney to make the actual switch.  Legalzoom may seem cheap on the surface, but you end up paying about the same amount once you check all the boxes you need to check to make it a legal, enforceable corporation and there are LOTs of ways things can go sideways. Each state also differs in what type of corporations therapists can file- so there are a lot of therapists who have filed for the wrong types of corporations- doh!

Finally, Could Spending Money Save You Money? 

3. Look at your total tax situation for you AND anyone you file jointly with. See if you can get a clear picture of what tax bracket you might be in. For example, If you are $10,000 over the next tax bracket you could be paying 28% (or more) taxes on that income- or $2800- taking home just $7,200. If you were to make a $3k expense at the end of the year, you would be paying just 28% tax on only 7k (instead of 10k). You would take home $5040 instead of $7200.  Meaning you paid out an extra $3000 to get an amazing training, but took home just $1960 less! Some might say in this case- the $3,000 training only cost you $1960! 

Are your eyes glazing over when it comes to numbers? Keep it simple for now. Get bookkeeping set-up, talk to an accountant, and get clear about your tax situation and how to reduce how much you pay to the government!