Bookkeeping

Bookkeeping Basics for Group Therapy Practice Owners

Headshot of Bryce Warnes
August 26, 2022
Bryce Warnes
Content Writer
Older white woman doing her bookkeeping on a laptop.

Whether you’re transitioning your solo therapy practice into a group therapy practice, or you’re starting a group practice from scratch, you should be ready to handle bookkeeping.

From a bookkeeping perspective, group therapy practices are more complex than solo practices. More therapists under your roof means: 

  • More streams of revenue
  • More sources of expenses 
  • Setting up payroll (or accounts payable, for contractors)

If your practice has achieved a scale where you’re paying employees or contractors, it’s time to hire a bookkeeper.

Unless you are truly gifted at using accounting software, and you’re prepared to dedicate hours every week to bookkeeping, hiring a bookkeeper will save you time and money. It will also help you avoid making (potentially expensive) mistakes when you file your taxes.

This guide gives you everything you need to know so you can meet with a bookkeeper, work with them to get daily bookkeeping set up for your therapy practice, and answer questions when they arise.

How to hire a bookkeeper for your group therapy practice

You have three bookkeeping options to choose from:

  1. A solo bookkeeper
  2. A bookkeeper at an accounting firm
  3. A software bookkeeping solution

When hiring solo bookkeepers and bookkeepers at accounting firms, the cost is typically calculated by the hour. The more work your bookkeeper has to do for your business, the more you will have to pay each month.

Software bookkeeping solutions like Heard typically charge a flat monthly rate.

Solo bookkeepers

A solo bookkeeper may have a physical office in your community, or may work entirely remotely.

The cost of a local bookkeeper will vary depending on your area. To find one locally, ask for referrals from other therapists in your area, or from related and overlapping businesses (like medical clinics).

It’s a good idea to find a bookkeeper who already has experience working with similar business structures—you’ll need to do less work getting them up to speed on how your therapy practice is run.

Services like Upwork, which allow you to hire freelancers online, give you access to bookkeepers all over the world. According to Upwork, bookkeepers hired through their service cost $11 to $25 per hour.

Accounting firm bookkeepers

Accounting firms frequently offer in-house bookkeeper services. The benefit, if you go this route, is that you’ll have your day-to-day bookkeeping handled by the same business responsible for your tax filing.

That being said, depending on how the firm charges for their services, you may not have the option of having a firm’s in-house bookkeeper work for you, while doing your accounting elsewhere.

Prices for bookkeeping at accounting firms range widely depending on your geographic area and the size of the firm. 

Software bookkeeping solutions

A number of software bookkeeping and accounting solutions have established themselves in recent years. Different services offer different prices, and different limitations on the type of bookkeeping they do.

Heard costs $249 per month for group practices. It’s the only online bookkeeping and accounting software designed specifically for therapy practices.

A software service gives you access to an online dashboard where you can view financial information and communicate with your bookkeeping team. Transactions are automatically imported from your bank accounts, and categorized by in-house bookkeepers.

Many software solutions also offer accounting services—tax filing, in particular—in addition to day-to-day bookkeeping.

How to hire an accountant for your group therapy practice

An accountant is an invaluable resource for any small business.

Many simpler small businesses—solo practices, in the case of therapy—only see their accountant once per year, when it’s time to file taxes. 

An accountant can help you file your taxes so you take advantage of every tax deduction possible, as well as develop strategies for how you file and pay your taxes in the future, so you can reduce costs for your business.

More complex businesses—if you run a group therapy practice, you may fall into this category—see their accountants on a more frequent basis. An accountant can help you develop your business plan, create budgets, and incorporate your practice.

Depending on your location, you may have a choice between hiring a smaller, single-accountant firm, or working with a larger, national firm, like H&R Block.

Many business owners prefer to hire certified public accountants (CPAs). They typically charge more than non-CPA accountants, but they have fulfilled minimum requirements in order to achieve CPA status, including on-the-job hours and ongoing education.

For a deeper dive, see our article on how to hire an accountant for your therapy practice.

Business entities for group therapy practices

If you’re just starting your group practice, you must decide upon a business entity type.

Your business entity type, or business structure, determines who owns the business, how you file your taxes, and your legal and financial liability.

Here’s a full list of business entities:

  • Sole proprietorship
  • S corporation
  • Partnership
  • C corporation
  • Limited liability company (LLC)

A sole proprietorship is identical to your person, for legal and financial purposes. You’re 100% responsible for all debts your business incurs. There are very few cases when it would make sense to run your group practice as a sole proprietorship.

An S corporation offers more liability protection than a sole proprietorship. Other therapists at your practice can become members of the S corporation, and share ownership in the company.

Ownership in a partnership is shared between multiple individuals; if you’re teaming up with other therapists to start a group practice—as opposed to hiring them—a partnership may make sense for you.

A C corporation pays taxes separately from its owners—meaning, you must pay income tax both on the money the corporation earns, and the money you pay yourself from the corporation. Because of the legal fees and financial complexities involved, in addition to this so-called “double taxation,” it rarely makes sense for a group therapy practice to incorporate as a C corporation.

A limited liability company (LLC) is administered at the state level. How you form and run one depends on your state. LLCs may file their taxes as sole proprietorships, partnerships, or corporations.

Not sure which is right for you? Check out our article on how to choose a business entity for your therapy practice.

Employees vs. independent contractors

The other therapists working for your practice—as well as any support staff, such as personal or office assistants—may be either employees or contractors. 

Employees, in this case, are referred to as “W2s,” after the W2 tax form you file on their behalf. For independent contractors, you must file a different form, Form 1099-NEC

You may have a mixture of W2s and contractors working at your practice. Whether a therapist at your group practice is a W2 or a contractor has a significant impact on your bookkeeping. Each must be treated differently on the books and when you file taxes. 

W2 bookkeeping and payroll at your group therapy practice

You must file a Form W2 for every employee at your group practice who you pay more than $600 in the course of the financial year.

The biggest difference between a W2 employee and a contractor is that a W2 is employed indefinitely by your practice, and paid a regular salary or wage. 

When you pay a W2, you must withhold taxes from each paycheck, and remit the money to the federal government. You’re also required to report, on a quarterly basis, all the money you’ve withheld from your employees.

This withholding includes:

  • Income tax, which varies according to the employee’s tax bracket
  • FICA tax, 7.65% of the employee’s income, which you must match with an equal contribution (totalling 15.3% of their income). FICA tax includes Medicare and Social Security taxes.

Payments to employees are categorized on the books (using the chart of accounts) as “Salary” or “Wages,” and withholdings may be listed as “Taxes.”

Contractor bookkeeping and accounts payable (AP) at your group therapy practice

You may also have therapists or support staff working at your group practice who qualify as contractors.

Contractors, as opposed to employees, work either for a set period or on a project-per-project basis.

The web designer you hire to create a website for your new group practice is a contractor. So is the therapist you hire a few times a year to lead a series of workshops for clients. 

In both cases, when these individuals finish their jobs—when the website is complete, or the workshops are over—your professional relationship with them effectively ends.

You aren’t required to withhold any taxes from a contractor’s pay. They’re responsible for reporting their own income and paying taxes on it.

A contractor will send you an invoice telling you how much you owe them, and for what. For bookkeeping purposes, that debt appears under Accounts Payable (AP). The debt is paid off with money from Cash. This assumes you use the accrual method of accounting.

When you file taxes, you’ll submit two copies of Form 1099-NEC, which reports how much you paid the contractor over the course of the year. One copy goes to the contractor, the other goes to the IRS.

If you’re unsure whether a worker should be classified as a contractor or an employee, consult with an accountant familiar with labor laws at both the federal level and within your state. 

Misclassifying contractors as employees is a common tactic among business owners trying to save money on taxes, and the IRS is on the lookout for it. 

Payroll for your group therapy practice

If your group therapy practice is an S Corporation, or the other therapists at your group practice are employees, you’ll need to set up payroll for them. Payroll is the standard process whereby employees’ salaries are calculated, taxes withheld, and cash withdrawn from your business bank account and distributed to them.

Depending on how many employees you have, payroll can be a time-consuming task, one that recurs frequently. Many businesses opt to work with a payroll provider, a company which acts as a third party between the business and its employees, taking care of the payroll process entirely.

If you choose to set up your own, in-house payroll solution, be prepared to:

  • Compile payroll information for each employee (including bank transfer information, if necessary)
  • Collect employee tax forms
  • Research state and federal employment laws, to make sure you comply
  • Learn about federal tax withholdings
  • Set a payroll schedule
  • Draft a payroll policy

In addition, whether or not you use a payroll provider, your practice will need to get an employer identification number (EIN).

For a full run-down, see our guide on how to set up payroll for your therapy practice.

Recordkeeping for your group therapy practice

Once you hire a bookkeeper for your group therapy practice, there are two types of records you need to keep:

  • Financial reports and copies of your general ledger, for the sake of financial planning
  • Receipts, to support any deductions you claim

Financial reports and your general ledger

Your bookkeeper should be able to provide you with monthly or quarterly financial reports. 

These reports are generated using data from your general ledger, which documents every transaction—whether revenue or expense—on the books.

The three key financial reports are:

It’s important to keep every financial statement your bookkeeper creates for you. By tracking your financial statements over time, you can observe how your group practice grows and develops. Financial reports are essential for creating financial projections, and planning for the future.

Also, if you ever decide to apply for a loan for your practice, sell it, or bring on investors, you should be prepared to provide a history of financial reports, so your lender, buyer, or investor can create their own projections.

Your bookkeeper should also be able to provide you with a complete, up-to-date copy of your general ledger. If necessary, you can use this to get a more detailed view of how your practice earned and spent money over a particular period, day by day.

When you use Heard, both your general ledger and a complete history of financial reports are available online within your account.

Receipts for tax deductions

Any expenses you claim on your tax return must be supported by receipts. A receipt proves that you actually incurred an expense, and that you didn’t just make it up in order to save on taxes.

Typically, the only time you need to provide a receipt proving an expense is in the event your practice is audited by the IRS. If that happens, the IRS can go back through your tax filings for up to six years. So, plan to keep all your receipts saved for six years, just in case.

Saving receipts can become complicated if you allow your employees to claim expenses through your business. In that case, you need to be doubly sure that any expenses employees claim—and which you later deduct on your tax return—can be supported by a receipt kept in your records.

Tax deductions for group therapy practices

There is a wide range of tax deductions a therapy practice can claim. See our complete list of tax deductions for therapists.

Here are some deductions specific to group therapy practices to keep an eye out for:

Staff parties 

If you throw a staff party, it’s 100% deductible on your tax return. Just be sure to document everything carefully, including a list of attendees.

Your staff party is only 100% deductible if it’s exclusively your employees and their families who attend. If you invite friends, outside contractors, business contacts, etc. the party is only 50% deductible.

Also, in order to qualify for the 100% deduction, you must extend the invitation to all employees.

Employee education 

You can deduct 100% of the cost of providing continuing education to employees, up to a total of $5,250 per year. The cost of education includes books, tuition, and travel.

In order to qualify, your group practice needs an Educational Assistance Program. This is a formal set of rules, in writing, for how and when you offer and provide educational assistance to your employees.

The education needs to be related to your employee’s job—so, ongoing therapy education for therapists, upgraded administrative skills or software training for administrative assistants, and so on.

Employee health plans

If you sign up for a group health plan for your employees, you can likely deduct the cost of doing so.

The following are 100% deductible:

  • Employee health premiums (of which your business will typically pay 50%)
  • Contributions to a qualified health savings account (HSA), up to the annual limit. This limit includes both contributions made by the employee as a pre-tax withholdings from their paychecks, and as contributions made by your business.

If your practice can’t afford group health benefits, you may opt to set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). With a QSEHRA, you reimburse employees for medical expenses. The cost of the reimbursement is tax deductible, up to a specified limit.

In order to keep your group therapy practice organized and on track for financial health, one the best moves you can make from day one is hiring an accountant. Learn how to hire an accountant for your therapy practice.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

Bryce Warnes is a West Coast writer specializing in small business finances.

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