Taxes for Sole Proprietors: What to Bring to an Appointment with your Tax Preparer

I suspect that the fear of the Tax Man is one of the major deterrents for clinicians to start their own business. I’ve always had an irrational fear of that I will make a mistake on my taxes, only to find a tall man in a trench coat and fedora on my doorstep the next day ready to take me to prison.

The truth is that taxes are a reality for everyone. Sure, working for someone else and filling in the blank boxes on TurboTax was easy. But those days are long gone now that you are self employed. Even so, getting your taxes done doesn’t need to be too complicated; just follow this advice:

First piece of advice: hire a tax preparer

Why hire a professional? For the same reason you would hire a professional anything. Because they know what they are doing! Just like your clients can easily google their own therapy advice and read self help books, you too can do your own taxes. But is this the best idea? Usually not. As of August 2022, 9.63 million Americans were self employed*. I guarantee you that the majority of these people are not doing their own taxes. It all seems straightforward enough, but I don’t feel confident enough to risk this. Considering all of the plates in the air that comes with self employment: deductions, new tax forms, state and federal dues, ect. I’d rather put my faith in a professional.

The Small Business/Self-Employed Division is the largest sector of the IRS. The LARGEST. This can only mean one thing, small business owners and the self employed beware. Your chances of getting audited are actually quite low (only about 3 in every 1000 tax returns get audited*), but better not to chance it!

Small businesses and self employed individuals who do their own taxes have opportunity to cheat the system. These sneaks could easily try to underreport income, deduct all sorts of things, or claim major business losses that aren’t real — and they do! This is why we have a target on our back. Don’t do this. Please don’t do this.

My tax preparer also set me up with a quarterly payment system so that I could pay most of my taxes up-front. As a self employed individual you too will need to pay your taxes quarterly. I am glad that this was brought to my attention by my tax preparer!

Second piece of advice: Prepare and gather your documents

As a sole proprietor, a 1099-K is the document you will need to provide that reports your gross income. This is similar to the W-2 that you used to receive from your past employers. This step is easy for me, because I use Simple Practice. Simple Practice will email and mail a copy of my 1099-K in early January. I don’t need to stress about adding up my total copay transactions or insurance payments. When you use software like Simple Practice or Therapy Notes, all of this is included.

Other documents to consider are tax forms from other sources of income: unemployment, stocks and bonds, interest dividends. These will be provided to you by the end of January from each relevant institution.

Third piece of advice: deduct, deduct, deduct!

There are so many options here that I wrote a whole separate blog post about it, providing as comprehensive a list of possible tax deductions for a private practice therapist as I could. There are many! Most notably: anything you purchase for your office space, the cost of your office space, home office, continuing education fees, business meals, and even your tax preparation fees.

If you plan on having many, many expenses there are a number of apps that can help manage your list of business deductions. Honestly, I just use an excel sheet. I had less than 100 items, so so it was a perfectly reasonable solution. But if you anticipate a lot of expenses, an app might be a good idea.

I think it is important to find a tax preparer that is ethical and knowledgeable on the do’s and don’ts of deductions (refer back to the first piece of advice above). That way you can have some piece of mind about what you should be deducting and what you shouldn’t be (even if it sounds like something you should). For example, here is a list of a few things I have asked my tax preparer if I could write off; all of which he said, “Absolutely not.”

• My dog and all the her expenses. She comes to the office and comforts my clients. She’s a therapy dog! But not really. She isn’t certified and the service I am providing is irrelevant to the dog. Sorry Freya.

• Massages and self care. I was actually advised from another therapist that any and all self care activities could be a write off. Turns out, this is not true. I think I could argue it, but overall a weekly massage doesn’t contribute to my work as a therapist.

• Krav Maga classes. I started self defense classes last year. My argument is that I am working alone and I need to know how to defend myself; can this be a deduction? His response… “and this helps you conduct therapy how?”

Fourth piece of advice: be patient

It is not uncommon for tax preparers to work 50-80 hour weeks during tax season. Can you imagine? This is when most of their business is active and when they make most of their income. If you are accustomed to sending an email and receiving an immediate reply, you might want to take a breath. If you are concerned about getting your taxes done before the deadline, then start this process early. This is a business relationship that should be treated professionally. If I was working those hours and a client emailed incessantly and demanded instant responses, I would not be happy. Be kind to your accountant!

I like to give my tax preparer a simple email with all the information and documents that he needs. Providing this makes his job easier, and it gives me peace of mind that I haven’t forgotten anything. Download this checklist to keep yourself organized and on track!

As you are preparing for your taxes, please take a look at this complete list I have complied of everything you need to have gathered for your tax preparer.

TL;DR

Trust the professional. Hire a tax preparer! The chances of getting audited are low, but still possible.

You may need to pay your taxes quarterly, and not just during tax season.

Get your documents in order in advance. Most importantly, your 1099-k, which will be provided to you if you use a billing software.

Know what deductions are allowed and what is not allowed. This will greatly impact the money you will owe to Uncle Sam.

Be patient. Your tax preparer is working long hours during tax season and is probably running on fumes. Get your documents in as early as you can.

Take a look at my complete list of everything you should gather as you prepare to meet your tax preparer.

*https://www.oberlo.com/statistics/how-many-americans-are-self-employed

*https://www.experian.com/blogs/ask-experian/reasons-irs-will-audit-you/