Filing Private Practice Small Business Taxes
Learn about filing small business taxes for the first time with Healthie. Read ways to keep track of your private practice expenses.
It’s that time of year again – tax season! Where do we even begin!? In this special blog post, we’ve answered your burning tax questions, helpful for newbies and experienced nutrition pros alike. Jill Mongene MAcc, RD, LDN of Fuelimentary, is a public and private tax accounting practitioner turned Registered Sports Dietitian who is helping us make sense of filing taxes the right way.
Learn how to confidently file your business taxes this year, what you can deduct from your taxes and how to incorporate taxes into your client prices.
Can the same person who prepares my personal taxes prepare my business taxes?
Are you currently employing a certified public accountant (CPA) to compile or your personal taxes? If the answer is YES, then, my answer would be a YES also.
However, if you are employing someone to prepare your personal taxes who does not have a background in tax accounting you could be putting yourself and your business at risk. Much like dietitians, CPAs must earn a Masters degree in accounting, auditing or taxation AND pass a rigorous exam, known as the CPA exam, which is two days and four sections! Only CPAs can sign off on tax return preparation. If the person signing your business tax return is not a CPA, you and your business have no protection should an error occur.
Many of the pop up services around tax filing deadlines employ individuals that DO NOT have CPA credentials (if the name of the business does not have CPA in it, tread lightly folks!). I recommend that all business owners find a CPA within a small local firm you trust and send your personal and business return preparation there. Now is a good time to start asking friends, family and colleagues for CPA referrals.
What tool(s) do you recommend using for keeping track of my expenses?
An electronic tool is the easiest approach for keeping track of expenses. Mint is a great, free tool that can be linked to your bank accounts, credit card company and investment accounts. By using Mint, each time a transaction takes place, it is posted to your Mint account and later you can mark it as a revenue or expense without having to manually input each transaction. Within Mint you can also set up a budget that will provide a real time picture of where you stand on meeting or exceeding your set budget.
If you’re not an technical person, you can always record your budget on paper. Currently, I’m a paper person! Each month, I set up a budget with my personal and professional income and expenses.
I reconcile my bank accounts on the 15th and the last day of each month by recording expenses into categories: groceries, gas, dining, house, pets, health, recreation, business, gifts and miscellaneous. I keep all my monthly budget papers and review them at year end (it is more tedious this way) for my CPA.
An additional tracking mechanism is Excel. If you’re savvy with Excel, you can set up spreadsheets in a workbook for each month to track your expenses much like the paper process.
No one way is the BEST. Each tracking option takes time. Consider dedicating approximately 2 to 4 hours a month to track your expenses.
Do I need a tool like quickbooks as well? Or, would a free platform like Mint be sufficient for me?
A private practice dietitian has the choice of using Mint or Quickbooks. In my opinion, Quickbooks online is the best resource for keeping track of all your business expenses. It is easy to use, relatively inexpensive (online service is about $20.00 a month) and secure. It has the same capability to link credit card and bank accounts electronically so that manual input of transactions does not take up all of your time.
Most CPA firms also know how to use Quickbooks. Therefore, at the end of the year, you can easily print out reports and hand them over to your CPA or you can provide your CPA with the username and password to your account for information to be extracted. Quickbooks offers phone support, unlike Mint, in case you have questions regarding how to categorize transactions. In addition, Quickbooks and Mint do not communicate with each other. So, it is best to consider starting with either Mint or Quickbooks from the beginning.
Read more on the difference between Mint and Quickbooks here to make the choice that’s right for your practice.
Do I need to incorporate taxes into the coaching plans and programs that I offer?
Currently, Healthie billing does not have a line item approach for designating sales tax. More than likely, the reason behind this approach is due to various states in which registered dietitians consult.
It is my understanding that many dietitians have licensure, and therefore practice, in multiple states. As a provider of services, your business may be required to collect sales tax for services provided. First, you must determine if your state taxes services. Each state has unique laws around sales tax requirements and rates. This answer can be found on your state’s website by performing a search on “sales tax and services.” State websites typically end in .GOV or .DOR (government or department of revenue.)
If your state requires sales tax collection, you need to determine if your services trigger a sales tax collection requirement. State taxing authorities follow the PHYSICAL PRESENCE TEST to determine taxability. Physical presence is also called NEXUS in the tax law.
Here is an easy way to understand the physical presence text or nexus that does not trigger sales tax collection:
I live in Tennessee but I provide Telehealth services through Healthie to a client in Michigan. I never travel to Michigan to see this client. Therefore, I would likely never meet the PHYSICAL PRESENCE TEST or NEXUS. Therefore, those services would not be subject to a sales tax collection requirement.
Here is an example of the physical presence text or nexus that triggers sales tax collection:
I live in Tennessee and I have been consulting with a client over Healthie’s Telehealth platform. The client lives in North Carolina. Over the course of my services provided to the NC client, I traveled to NC one time to meet face to face with the client. Because I saw the client in this state, I have met the PHYSICAL PRESENCE TEST or NEXUS and have triggered a sales tax obligation. I must collect sales tax on the cost of the services provided to this client each and every time I consult.
In the tax world, the easiest way we remembered this law, was to say: I didn’t drive my Lexus, so I don’t have Nexus. (Meaning, if you did not GO to the state, you do not report in the state.)
Sales tax must be tracked for each state where the action triggered collection. Each state also has unique reporting laws. Please check with the Department of Revenue within the states where you have triggered the PHYSICAL PRESENCE TEST or NEXUS.
Do include taxes in my client packages, and how do I calculate the tax?
Here, we are addressing two types of taxes. Sales tax is calculated based on the fees charged for services performed. Below are two examples of how to calculate sales tax.
If I am living in Tennessee and I see a client in Nashville, I must pay sales tax on those services I provided to the client. There are two ways to calculate the sales tax in general: imputed and grossed up.
Imputed means assigned. Essentially, the fees include the sales tax, but the tax is not illustrated within the printed fee.
If I charged my client $100 for an hour, I would assign 9.25% of my fees
at $100.00, $9.25 in sales tax. Therefore, my net income for the $100.00
session would be $100.00-9.25 = $90.75. In this example, the client is only
charged $100.00. The dietitian keeps $90.75 as revenue and $9.25 is set
aside to report and sent to the state for sales tax obligation.
Grossed up means to a full charge is included. In this example, the client would have an additional charge onto my $100.00 per hour fee.
$100.00 charge for one hour session plus 9.25% sales tax = $109.25 total fee
(includes appropriate sales tax.) On the clients invoice or within Healthie, a line should be placed that states: all nutrition counseling will include the appropriate sales tax for services within [your state.] The dietitian keeps the $100.00 as revenue and the $9.25 is set aside to be reported and sent to the state for sales tax obligation.
Is the amount based on how much the entire program cost or how much I pay yourself?
Remember, whenever a service is performed, as a practitioner, it is your responsibility to know the tax law and collect the appropriate funds. The practitioner is only the holder of the sales tax funds collected. As a business owner, collection of sales tax and submission to the state is law.
Please reach out to your state Department of Revenue. Most states offer free classes to new businesses on all of the state taxes. If there is not a class, state tax offices are always more than happy to answer questions from small business owners too!
In relation to taxes for how much a RDs pays his or herself, this tax is known as income tax. Not all states have income taxes. For instance, Tennessee does not have an income tax. A business registered in TN, at the end of 2018, will file a return with the Internal Revenue Service (IRS) for Federal taxes on income. The business will have no requirement to file a TN tax return for income, since there is no income tax in the state!
Your state may be different. Recall the North Carolina example regarding sales tax. In that example, the dietitian traveled to NC and saw the client in NC. Therefore, the dietitian is required to report the income earned and pay the income tax rate at the end of the year on the state income tax report.
What are some common business deductions in my private practice that I should be aware of?
The best thing about being a small business owner is taking advantage of all the great small business deductions! A comprehensive document is revised and published each year by the IRS. https://www.irs.gov/pub/irs-pdf/p535.pdf Publication 535 Business Expenses. This guide provides everything you need to know about business deductions. For instance as a RD in private practice, you can deduct Healthie software costs as an expense. Expenses must be necessary and ordinary in order to meet the business expense definition. The IRS deems the term “necessary and ordinary” as costs that are not excessive and expenses that are incurred to conduct business.
How do I deduct Healthie as a business expense on my taxes?
Healthie would be an acceptable expense. In this case, I would classify Healthie as a software expense on my Quickbooks entry when it is charged to my credit card each month.
Other ordinary and necessary expenses include equipment purchases, subscriptions to publications, license fees, exam fees, study materials, office space within my home or at another location outside of my home, gym memberships (if I am marketing my business while I work out), office supplies, business meals, reasonable gifts, depreciation on equipment (Remember depreciation calculations from the RD exam?), printing costs, coupons for percentage off my services, mileage costs for driving to events or client meetings. Honestly, the list is extensive! So long as you can justify it is a reasonable and ordinary expense, that outlay of cash can qualify as a business expense.
Filing taxes can be confusing, especially if you’re just starting out in your practice. Your filing next year can be made easier by getting a head start. Moving forward, start using the tips in this special blog and start tracking your finances moving forward. This is one task that you don’t want to procrastinate throughout the year!
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