Texas Counselors Creating Badass Businesses

112 Navigating Taxes for a Private Practice Therapist: Year-End Finance Tips

• Dr. Kate Walker Ph.D., LPC/LMFT Supervisor • Season 3 • Episode 112

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Ever wondered how to transform your financial chaos into order as a private practice counselor? Join me, Dr. Kate Walker, as I unravel the secrets to financial mastery, just in time for the year's end. From my own learning curves with the IRS to the surprising benefits of tax write-offs, discover how to correct financial missteps with grace and keep your business budget in check. Whether you're a newbie or a seasoned entrepreneur, I’ll shed light on maintaining a dedicated business account, leveraging business credit cards wisely, and the pivotal role of tax professionals in your journey. Plus, for those navigating the complexities of LLC filings, I’ll guide you through the essential BOIR report and FinCEN ID requirements.

As we gear up for the fourth quarter, this episode promises actionable insights tailored for small business owners. Learn efficient strategies for setting aside funds for taxes, and explore the nuances of different business structures such as S-corporations and nonprofits. I’ll also share why choosing the standard deduction might sometimes be the smartest move. Stay ahead with practical advice on organizing your IRS filings, and don’t miss out on valuable resources like past webinars from experts like Dr. Olivia Waddell. Tune in next week as we shift focus to organizing Continuing Education credits, ensuring you remain compliant and on top of your practice game.

Get your step by step guide to private practice. Because you are too important to lose to not knowing the rules, going broke, burning out, and giving up. #counselorsdontquit.

Speaker 1:

Hey, welcome to your Texas counselors. Actually, not Texas counselors, let me try that one more time. Hey, I'm Dr Kate Walker. Welcome to your Step it Up training For all Step it Up members. I'm going to let folks in here. We go. Remember your Step it Up training happens every Tuesday. It's a group coaching just for Step it Up members.

Speaker 1:

But if you're listening or watching this, then that means you're doing something awesome during your day. You could be on a treadmill, you could be driving in the car trying to block out the sound of your kids, or you could be just doing something super boring like walking through the grocery store. So I am so happy to be with you on your daily task or whatever it is you're trying to do, because you know we've got to be conscientious. If we're business owners and if you're a counselor in private practice or if you're aspiring to be a counselor in private practice, you got to get this stuff organized. And this is Q4. This is the fourth quarter of our financial year and so, even though it's tempting to sort of like, let the shorter days, longer nights, holiday season, sugar fest kind of lull us into this sense of yeah, I'm just going to nap a little bit longer today. We can't do that. We are business owners and we're not just business owners, we are badass business owners. So last week we talked about kind of a general checklist and I included getting your finances in order. Today, as promised, I'm going to go into more detail about what you need to do to get your finances in order. And don't forget, next week the schedule changed I was going to talk about I don't remember what I was going to talk about but now, because my CEs are being audited, I'm actually going to take you through how I get my CEs organized. So, even though that's not technically a fourth quarter type of activity I'm a December birthday, so it just happens to be for me I thought it'd be helpful so everybody could see kind of how I get organized, which CEs are going to roll over, which CEs are going to count for my 50% quota, all of that fun stuff. So that's next week. So today is all about the money, all about the taxes. You made the money, so it's time for you to get it organized so you're not giving it all away to Uncle Sam for tax purposes. So I'm going to go. I thought about this a lot and I will take questions at the end. But you know, sometimes I feel like we complicate taxes and we complicate finances.

Speaker 1:

I mean, if you've heard me teach before, I've told everybody my original degree was in music. I was a music major. I graduated with a degree in music. I had to take out of the entire undergraduate degree, three hours of math, like if I had just picked the major that needed the least amount of math. Music was definitely it. So I always called myself sort of not a numbers person and I had some really scary experiences as a new business owner. That reinforced that. You know.

Speaker 1:

My accountant gave me, you know, great advice, but then the very first year that I made a profit, he's like congratulations, you made a profit. I need a check for $10,000 to send off to the government. I'm like I've never been able to write a $10,000 check. Sir, I'm not starting today. So it was that's when I got to learn that the government has payment plans and I got to learn about how penalties accrue daily. I got to learn that how penalties accrue daily. I got to learn that actually, if you file an extension, you have until October 15th of the filing year to file. So you know, no matter what happens, please just know it's okay if you make a mistake.

Speaker 1:

There is a way to fix almost every mistake. And the IRS you know they have a scary, scary reputation, but the times I've had to interact with the IRS they've been very, very nice. And I actually I did a podcast recording about a month ago I had made a mistake on my previous year's filing. I mean, it was something as simple as I think. I forgot to write the check or I forgot to put it in the mail. I mean something just super ADD Kate-like, and so it was definitely my fault. And when I got on the phone to talk with the IRS, they were like, hey, let's walk through it, let's make sure they were super friendly. So I want to put everybody's mind at ease. You don't have to be perfect at this and if you do the things I tell you to do today, or at least half of them, you're going to be farther along than I was 20 years ago. And we're most new business owners and I'm talking everything from a shoe store owner to a mechanic owner. Everybody has to go through this, it's okay. Nobody is just perfect at it right out of the gate. So number one, number one thing is to organize your business expenses. Now, if you've seen Schitt's Creek, which is, I loved Schitt's Creek, it was so funny.

Speaker 1:

One of the episodes that I love was when David is talking to his father about write-offs. He had bought all of this stuff with money he didn't have and his father was like why did you buy this? And David kept saying it's a write-off, it's a write-off. And the father was like, well, who's going to pay for this? And David's like the government. Okay, so no, that's not what a write-off does. A write-off is just an item in a mathematical equation. It's something you can subtract to lower your income. Subtract to lower your income Remember the tax game with the government is the more profit you earn, the more money you make, the bigger the percentage you will be taxed, and that is a generalization. There are lots of other things involved there. So when you are able to reduce the amount of profit that you made, you will get taxed less money.

Speaker 1:

Now we are business owners. We don't want to make less money. Let me be very clear about that. The goal is not to make less money. The goal is to make sure you understand. You are writing off, you are subtracting qualified business expenses. So task number one is to identify business expenses.

Speaker 1:

Now, there are a couple of ways that I do this. Number one I have a dedicated business account. I use Capital One. It's online banking, and I love them because they don't charge me fees when I have a minimum low balance. I keep zero dollars in one of my business accounts because it's just for paying bills, and so if I got charged like 12 bucks a month every time I went under 500 bucks, I mean that's ridiculous. I don't want to pay that money. So I love Capital One and they let me open up as many accounts as I want to. So, anyway, I don't work for Capital One. That's what I like. So, but I do have a dedicated business account.

Speaker 1:

So at the end of the year, this time of year, I don't have to go through by hand, going okay, was this a business expense? Was this a business expense? Because I've disciplined myself to make sure that I only spend money in this account. That is a business expense. Now, how do I know that? The answer to everything today is going to be ask a tax professional. You can Google it. What are the 2024 tax write-offs? But you know that's. I mean you can Google anything. But I highly encourage you to get a tax professional, because there are things that you buy for your business that you can write off, like your cell phone, but there are things that you use for your business, like putting gas in your car to get to work you cannot write that off. There are ways to write off kind of depreciate that type of expense, but it gets complicated.

Speaker 1:

Same thing with your home office. When we all went indoors for COVID and we're working for our home, right, we have a I do now actually I did in 2020 as well I had a dedicated office space, like it wasn't a bedroom, like if you looked in my office right now, you would not see a bed. This is a dedicated office space, so there is a way to write off this space. So you're going to have a separate business account and you're going to talk to a tax professional to figure out which one of those things are qualified write-offs. You can do it by hand. If you've mixed money and it's too late, it's okay. Remember what I said earlier we all start off in business, we're all newbies, but you're going to have to go through by hand and luckily it's not like paper receipts, I mean, you can at least go online and see the transactions. You just may have to go month by month, but better start now.

Speaker 1:

But the other thing you can do. I also have a credit card. Now, this is dangerous ground if you don't feel that disciplined with credit cards. So please hear me and only take this advice if you know you are really disciplined with credit cards, because this only works if you can pay off the balance every month. If you carry a balance, you basically just wiped out any kind of a benefit you would have gotten. So I do have a business credit card that allows me to accrue points that I can use to travel or whatever, but I do have to pay that balance off every single month. I can never get an interest charge or it defeats the purpose, but it's another way of categorizing business expenses and recurring expenses.

Speaker 1:

Okay, so that's number one. That's the easy one. If you are not an LLC, if you're just a DBA, if you are just brand new, you hang your shingle and you're like I don't want the big corporation, I just want me. Well, at least do this, at least get, spend the next six weeks and identify those business expenses. Now number two if you are an LLC. Whether you are a LLC sole proprietor and I'm sorry, let me say PLLC, because we got to do that since we're licensees then you have to do something new this year and it's called a BOIR report. It is so easy to do this If you are in the Texas Counselors Creating Badass Businesses group. There was a huge, long thread about this with like 64 comments, and somebody had posted this amazingly helpful video. So I know you can go to YouTube and do a search how to file my B-O-I-R report. Y'all, literally in the hour before this coaching session I cooked squash, I ate a bowl of oatmeal and I filed my BOIR report. It was that easy.

Speaker 1:

So, also, if you're a Step it Up member, you have access to right now Dr Michael Flynn. He's an attorney and he talked about this in our webinar last month. So now, stepping up members, you have that as an asynchronous CE right now. So what will happen when you file that BOIR report? You will get something called a FinCEN ID. You'll get a FinCEN number that stands for let's see, if I remember this Financial Crime, investigating something, something. Anyway, fincen, it's a government agency that investigates financial crimes. They will give you a number and, as an LLC, you can use that number when you're filing your taxes this year. You have to file this B-O-I-R though if you are a PLLC, not so sure if you're a non-profit, if you're not a 501c3 or something like that. So, again, you remember what I said. We're going to ask a tax professional.

Speaker 1:

Number three now, this one's pretty easy and cool, and I'm like I said, I'm trying to give you the things that that are kind of out of the box a little bit, because when we start with the basics business expenses yes, we're all going to do that, but something kind of cool. I got an email and I have an IRS login, and many of you do too. You just go to the irsgov website, you log in and there's my account and I can see my tax returns, what I've filed, refunds I've gotten. If you haven't created an IRS account, highly recommend you do that, and that's not even number three. So go, do that. Right, get an IRS account. You will have to do something called ID me, and it's just a way that you prove your identity. Then you're able to log in to your IRS account.

Speaker 1:

And so my email said, hey, get a pin for your IRS account. I'm like, well, that's cool, I got a pin for my computer. I've got a pin for my Netflix account, I've got a pin for everything else. So why not IRS, with all the identity theft going around? Well, I have to do this and I did this. You have to do this before November 23rd. So if you're listening to me, it's after 23rd. Do not despair. You just have to wait until January 2025 to do it. So, no worries, you got this.

Speaker 1:

So the IRS PIN I'm not really sure what this is going to be used for. I haven't met with my tax professional yet this year, but I feel super prepared because the IRS actually issued me my PIN, so I couldn't use my birthday or the fifth. You know I use well, I'm not going to say that out loud. I have. Basically, I need someone to help me with pins because I'm not very creative. So the government said, hey, we'll help you, and they gave me a pin I would have never thought of. So, believe me, I downloaded it, I have it in a folder, I have it on my Trello board, so my IRS pin is in a very safe place. So, trello board, so my IRS pin is in a very safe place. So I'm hoping it makes things go a little faster this year.

Speaker 1:

So number one business expenses. Number two if you're an LLC, file your BOIR report. It will take you 10 minutes and you can actually cook dinner at the same time. Number three get your IRS pin and if you don't have an IRS login, go do that. All right, here we are. Number four now we're getting bigger.

Speaker 1:

If you are a practice owner who hires 1099 contractors, it's time to get your paperwork Now. Forms 1099 forms. Did you know you can actually get them at the public library Now they go fast, but the public library has tax forms. So if you have hired a 1099 contractor and you have paid them over $599, then you'll need to give them a 1099 form showing that you have paid them. So that is again. If you don't know how to do that, you can Google it super simple or ask a tax professional. In fact, we're having a giveaway next month, in December, and I'm giving away $599, so I don't have to give the winner a 1099. Yes, if you give someone a prize for $600, you're gonna have to give them a 1099.

Speaker 1:

So W-2, if you hire W-2 staff or employees, again, you've got to get this paperwork ready because it has to be in their hands January 31st, right, so you could procrastinate until January. But then you'll most likely have to purchase the forms, which is no big deal they're not super expensive. You can fill them out by hand. I use QuickBooks, so I just hit the button and it magically goes where it needs to go. But if you are small starting out, go get the forms from the library, fill that out. If you are a 1099 contractor or a W-2 employee, just know that that has to be in your hands and the reason we do that is so you could correct it. So if you look at the amount and you're like, ooh, that's not right, then your employer has the opportunity to correct that number before it's due.

Speaker 1:

Officially, number five well, it's time to figure out what you owe, because you may have had an amazing year and you have to open up a savings account or get on a payment plan or file an extension. So how do you figure out what you owe in taxes? Well, first things first, google tax bracket for this filing year. So when you Google tax bracket 2024, you will see the tax brackets and it will have it for different types of households and how you're filing. So if you're filing as part of a partnership, if you're filing as head of household. So you'll need to take a look at those numbers and you'll need to decide and this is again I'm talking to folks who've probably been in business for at least a year or more your quarterly taxes. So quarterly taxes are a super way to stay ahead of the game and basically your quarterly taxes are what you owe, so that tax obligation based on your tax bracket and your minus your business expenses plus your self-employed tax. Okay, you divide that by four, then you have your quarterly tax due date or obligation. So I know we're getting a little bit complicated now, but this helped me so much in year two Remember year one when I made that profit I was just praying that the government would give me a payment plan and they did and it was fine and I survived.

Speaker 1:

It was okay. But every year since then I have paid my taxes ahead of time in quarterly installments. Now you have to pay those on time. So for quarter one that's January the date is January 15th. So if you're taking time right now and you're doing the things I'm telling you to do and you're getting everything together and it's your first year, I would say, if it's year one.

Speaker 1:

You just need to figure out what you owe and then plan for it. Right? It's kind of too late to do your quarterly taxes, so you would figure out your expenses. To do your quarterly taxes. So you would figure out your expenses, subtract it from your income, then go to your tax bracket, figure out what that looks like, your self-employment tax. This is getting super complicated so I actually had to Google this. You figure out your self-employment tax because you'll pay 15.3% on the net profit. See, now it's like my whole brain just went shoo right because I'm just like, okay, too many numbers. This is why we hire tax professionals.

Speaker 1:

So the last three, number five figure out what you owe. That includes quarterly taxes. Number six figuring out your self-employment tax. And then seven figuring out your tax bracket. That will help you set aside. You know what I do, honestly, I just take about 20% of every dollar and I put it into a savings account. It's a little bit more than I need, but that's okay, because if it's more than what I didn't owe, I just put into a savings account or I invested somehow, right? So if you hear just kind of like what I do, like Charlie Brown's teacher, wah, wah, wah, wah wah.

Speaker 1:

Then take a deep breath and take away the number one thing is setting up a business account, making it separate from your personal account. Number two setting aside about 20% of every dollar not just your profit, every dollar that you earn from your practice, and then you can tackle business expenses and tax brackets. And then you can tackle business expenses and tax brackets and then you can look at what's more advantageous being an S-corp or an LLC or a nonprofit, right? Sometimes we get the cart before the horse, right, and we're like, oh, you know what kind of a configuration should I be? Well, it depends on your tax burden, right, and your profit. If you're just a small, small, small business, it's not going to make any difference. Because I'll tell you, after COVID, when I stopped paying for an office, my business expenses went way down, which meant I didn't even I mean I tracked them. But at the end of the day I took the standard deduction, which means all of that work I did categorizing my business expenses, it was for nothing, because it was actually more advantageous for my family that we just took the standard deduction. So if you are a small business, go with the main things here. Which number one separate your accounts here. Which number one separate your accounts? If you're an LLC which you know a lot of small practices are at least a PLLC, go ahead and submit your BOIR report. If you haven't created an IRS login, go do that and then get your PIN. You have a few more days to do that and then go back and listen to this recording and we'll figure out the rest.

Speaker 1:

Later In April I will have a tax professional. I always do. I have a tax professional. Come and talk to us. You can look back at past recordings. I have had the amazing Dr Olivia Waddell has come. She's talked to our group several times and so Step it Up, members. If you do a search in your products, you will find a one hour talk by Dr Waddell and she will walk you through how she organizes and it's an hour long presentation. I highly recommend that you go listen to that. All right, I'm going to hit the record I'm sorry the pause button and take questions if we have them.