Frequently Asked Questions

No matter what topic I cover, I receive the same set of questions consistently from clients and students. I offer some answers below for my top questions asked of me:

Do I need an accounting system?
Generally, those who don’t have an accounting system (Excel is not an accounting system) are not keeping track of their business expenses. Then, you probably don’t know how you are doing on a monthly basis. If you don’t know how you are doing, how are you saving 40% for taxes? I am so protective of therapists because I do not want you to experience a rude awakening of a tax bill on April 15th without the funds set aside to pay the taxes. When we are salaried employees, we receive net checks. I want you to consider your private practice as paying yourself a net check too. There are so many other reasons for having an accounting system, and it doesn’t take long into any of my webinars to hear more reasons why.
Should I be an S-Corporation?
CPAs will have a variety of opinions to answer this question. In my experience, do not commit to something if you do not fully understand the consequences. If it seems too good to be true, take a pause. When I hear CPAs recommend all new practices to immediately become S-Corps, it’s like asking a surgeon if you need surgery. An S-Corp setup makes you an employee of your company (your private practice). You have to pay yourself a reasonable salary, and the rest of your distributions are taxed. Yes, you have the potential to save PAYROLL taxes with an S-Corp, but when the IRS gives you tax savings, they also have demands. S-Corporations need to have an accountant and a payroll service without question. If you are in California, you have a minimum state tax of $800/year. (Also if you are in California, you cannot be an LLC; if you want that legal protection of your personal assets, your only option is to become an S-Corp.) There is so much debate about what a reasonable salary is, and so you do run the risk of the IRS saying you have not taken an adequate salary. Plus, with a lower salary, you are paying less into Social Security and Medicare; is that in your retirement interest? Please take that pause to really understand the extra burdens associated with an S-Corp.
Can I deduct on my tax return the difference between my billing rate and what clients or insurance companies actually pay me?
I have never met a private practice who is on the accrual basis; almost every practice is on the cash basis. Don’t worry if you don’t know the difference, but the easiest answer is a resounding NO. As a cash basis taxpayer, you pay taxes only on the income you earn. Therefore, you can’t deduct what you hoped to earn, your billing rate, because you can’t deduct what you aren’t being taxed. The easiest example is what if you said your billing rate is $900/hour and you collect $100? I can’t imagine you ever would think you’d be able to deduct $800. Sure, that’s a ridiculous rate, but the concept is still the same. Therefore, if you want to offer a sliding scale to clients, cap that number of clients with whom you offer a reduced rate. Also, don’t assume automatically that potential clients can’t pay if they initially ask if you offer reduced rates. Get creative with your offerings like suggesting maybe meeting less frequently (unless of course they are in crisis) or maybe you offer groups, too. If you are at your max number of sliding scale clients, offer a waiting list (again unless they are in crisis), or the best way to show you care is to suggest colleagues who specialize with that potential client’s issue.
How do I reduce my credit card processing fees? Can I pass them along to my clients, or can I offer payment options that have no fees?
Think differently about your credit card processing fees; instead of seeing them as annoyingly cutting into your hourly billing rate, think of them as a convenience of quick payment to YOU. It is so easy for me to click Submit Payment in my Simple Practice account after I have a session, and voila, I have no collection hassle. You cannot get creative with how you collect payment because it must be a HIPAA-compliant payment system. Do not charge your clients that payment processing fee either; besides being illegal in many states, you can’t charge them more without offering no-charge options. You wouldn’t want the delays from them mailing in checks, and how do you accept cash when you are Telehealth? The fee is a cost of business. Don’t stress about this issue; you have enough to keep you occupied.

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