Private Practice Taxes: Everything You Need to Know

Owning your own naturopathic clinic has a lot of perks. You’re your own boss, you get to make the rules, and you can focus on helping patients above all else. There are a few business responsibilities that balance out your operational freedom, though. Namely, filing taxes.

Private practice owners have a mix of unique and standard tax liabilities. It’s important to know what your business is responsible for paying so you can plan your finances accordingly. This blog is meant to help you navigate the complexities of private practice taxes by describing how they work, common deductions, who can help you, and important dates to remember.

How Private Practice Taxes Work

There are a number of different private practice taxes that you’re required to pay. The rates for each tax category are based on your earned income, which is any money you make through the practice, such as payment for services. 

Most people know about the major tax categories like personal income tax and FICA taxes. As a business owner, you’re responsible for these and a few more. Here’s a breakdown of the major taxes you’re responsible for when you own your practice:

• Self-employment tax (15.3%). This covers your FICA taxes—12.4% for Social Security and 2.9% for Medicare. Typically, these taxes are split in half between employers and employees, but because you’re self-employed, you’re required to pay the full amount.
• Income tax: This rate is based on your income tax bracket. It’s important to have a clear system for paying yourself from your business so you can easily calculate your personal income taxes each year. (Part of this amount can be taken as a tax deduction. We’ll discuss that in the next section.)
• Unemployment taxes: If you have employees in your practice, then you’ll have to pay the FUTA tax (federal unemployment tax) and state unemployment taxes. The FUTA rate is 6% for the first $7,000 you pay an employee each year. State unemployment tax rates vary, so check with your state government to find the rates for your business.

Typically, all the taxes you’ll pay for your business will comprise about 30% of your monthly income. The best way to make calculating all of these taxes easy is to practice expert bookkeeping throughout the year or partner with a bookkeeping service like us. It keeps all of your income and expenditures straight so they’re easy for a tax professional to assemble and file.

Deductions for Private Practice Taxes 

The good news about being the business owner is that you have the opportunity to deduct most of your expenses. This makes it a little easier to invest in your practice and can reduce your tax burden when it comes time to file. Some common deductible expenses include:

• Employee expenses
• Malpractice and liability insurance
• Office supplies
• Medical equipment (through Section 179)
• Marketing and advertising costs
• Office rent
• Utility bills for the office space

To claim these deductions, you’ll need to fill out the Schedule C (Form 1040) paperwork. It allows you to itemize your deductions based on specific categories, which helps you ensure you claim everything you’re eligible for. 

As a business owner, you can reap some benefits of paying private practice taxes in your personal income tax return. For example, you can deduct half of your self-employment tax from your personal income tax each year. This represents the half of your FICA taxes that a traditional employer would pay.

There is also a qualified business income deduction, which might allow you to deduct up to 20% of qualified business income from your personal income taxes. You’re eligible for this tax deduction if you operate as a sole proprietorship, partnership, S corporation, or LLC. Qualified income is limited to your business’s net profit.

Even with the Schedule C form and helpful deduction instructions, finding all of your potential savings can be difficult when you’re also trying to run a business. That’s when you might start wondering if it’s worth it to hire some help.

DIY vs. Hiring a Professional

Some practice owners prefer to do their own taxes each year. This can be time consuming, but if you’ve kept organized records and detailed books throughout the year, the process will be fairly straightforward and you’re less likely to make mistakes or miss potential deductions. Without organized bookkeeping, the process can be confusing and you’re more likely to miss important things that could put you in trouble with the IRS.

To avoid this headache, you can opt to work with finance professionals. First, hiring a professional bookkeeper is an easy way to make sure your business finances are always organized and easy to work with. They can track your income and expenses and regularly reconcile your books. When you have neat books, your tax professional can be more meticulous in their search for deductions and in their calculations of what you owe.

Hiring a tax professional means more than just saving yourself some hassle. A tax expert knows what deductions to search for, what tax liabilities you hold, and how to properly file for each. They ensure your business is operating within the most current tax laws and some can even represent you to the IRS if necessary.

Types of Tax Professionals

When it comes to choosing who will help you complete your taxes, you have a few different choices. In general, it’s advised to hire a tax professional with advanced certifications, such as a CPA, who can be your financial partner for the long-haul. Here are some types of tax professionals that can help your private practice.

CPA

Certified public accountants are required to hold a bachelor’s degree in business or finance and be certified by their state. They can work with individuals and businesses alike for everything from tax filing to tax planning. A CPA can act as a financial partner for your business and help you strategically maneuver yourself through the complex world of state and federal taxes. 

Tax Attorney

Tax attorneys are lawyers who specialize in tax law. They hold both a bachelor’s degree and a law degree, and typically have other state tax certifications. These professionals can be valuable business partners because they can help you with tax filing and planning as well as represent your business in any legal tax matters.  

Enrolled Agents

Enrolled agents are licensed by the IRS to prepare taxes. They don’t need any formal education, but they are required to pass a licensing exam and complete a certain number of continuing education credits each year. These professionals can help you ensure your taxes are prepared correctly for filing, but can’t offer comprehensive tax advice.

Non-credentialed Tax Preparer

These professionals hold no specific certifications or licenses. They are typically employees of tax firms or tax preparation businesses who are skilled in preparing tax returns through on-the-job training and experience. It’s unlikely you’ll work with the same non-credentialed preparer year-over-year.

To effectively manage your private practice taxes, it’s wise to choose either a CPA or tax attorney who can be your partner for years to come.

Important Dates

Filing taxes for your private practice is different from filing your personal tax returns. In addition to the year end tax filing, businesses are required to file quarterly tax reports as well. Here’s the IRS’s 2022 tax calendar, which includes filing dates and deadlines for businesses and individuals. Your state will also require quarterly filing, so be sure to check on its due dates as well.

Be Prepared This Tax Season

Managing the taxes for your private practice can be confusing and time consuming. If you’re ready for a break or just want to make sure everything is done right, consider hiring a tax professional to help you prepare and file your taxes. 

To make things even easier, Every Single Bean can help you organize and maintain your books. Schedule a call with us today to see how we can help make filing your taxes a little easier.