Private Practice Accounting: Everything Therapists Need for Tax Season

Regularly reviewing your cash flow will help you understand the financial health of your practice. Understanding your practice’s cash flow, including incoming and outgoing funds, is crucial for managing your expenses, paying your staff, and ensuring profitability. A bookkeeper or accountant can prepare cash flow forecasts that provide insights into your practice’s financial health and help you make informed decisions, such as whether you can afford to hire additional staff. Many small business owners start out using accounting software to manage their bookkeeping, but eventually hire a bookkeeper to track their day-to-day finances, and an accountant to help file their taxes. Use a separate business bank account and credit card for all business transactions.

• Whether you do your own books or use Accracy to manage it for you, here are four benefits of having an up-to-date bookkeeping process for your private practice.
• Answer a few questions about what’s important to your business and we’ll recommend the right fit.
• In that case, it’s worth comparing to Xero and Wave, the other options on our list.
• Use a separate business bank account and credit card for all business transactions.
• It may take some experimentation to determine what kind of workflow works best for you, and your results will vary depending on the accounting software you use.
• For example, many therapists probably don’t realize that using online accounting software to maintain financial records and process patient payments is a vulnerability that could result in a security breach.

In comparison, when you hire a bookkeeper, they make entries into your general ledger for you, and keep your books up to date. There is no new software to learn, and you won’t need a crash course in double-entry bookkeeping in order to track your finances. If you do decide to use accounting software, here’s what you can do to make sure you choose the best option for your therapy practice. Form a business entity, open a business bank account, and set up a retirement plan.

Receipts for tax deductions

If bookkeeping isn’t your strong suit, or if you’re months or years behind, you might make mistakes and miss tax deductions and tax planning opportunities that could save you money. You can typically deduct expenses necessary to run your therapy practice. Attending a counseling conference, for example, could be a tax write-off.

Here are seven steps you can take to create your own custom chart of accounts for your therapy practice. If you’re doing your own bookkeeping, you may want to label each account on your chart of accounts with the type of financial statement it appears on. As part of regular bookkeeping, you (or your bookkeeper or accountant) draw on information in your general ledger to generate balance sheets and profit and loss (P&L) statements for your business. Each financial statement looks at different types of accounts to get the information it needs.

types of bookkeeping for small businesses

At the end of the year, in order to prepare for tax season, you (or your accountant) will prepare annual financial reports, covering all the activities of your business during the year. With your general ledger up to date and your bank accounts reconciled, you’re ready to generate financial reports. Once you’ve got your bookkeeping in order—whether it’s for tax season, or simply for the sake of getting your back office organized—it feels good to know you’re starting with a clean slate. Making sure all your clients are in good standing and you’ve been paid for your services is a part of that. That may include emailed receipts, or printable and exportable receipts you can get online (eg. from your scheduling app, practice management software or other SaaS (Software as a Service) you pay for monthly).

If your bookkeeper bills your customers or pays your vendors and employees, make sure you have proper checks and balances in place to mitigate the possibility of fraud. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.

Bookkeeping 101 for Therapists

We know what to look out for and how to steer you in a more profitable direction from the get go. A bookkeeper or accountant can manage your financial records, bookkeeping for therapists provide valuable advice, and free up your time to focus on providing therapy. A thriving therapy practice is not just about providing excellent care to clients.