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Key Takeaways

• An accountant uses your bookkeeping records to file your taxes and help you make financial decisions
• CPAs, enrolled agents (EAs), and attorneys can represent you before the IRS in the event of an audit or tax dispute
• Carefully review a prospective accountant’s fee structure and verify their credentials before hiring them

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Even if your therapy practice is brand new, you may benefit from hiring an accountant. 

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A small business accountant can handle everything from filing your tax return to helping you make long-term plans. They can help you save money and find ways to run the financial side of your therapy practice more efficiently.

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Here are seven steps to follow when hiring an accountant for your therapy practice.

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Make sure you understand what an accountant for therapists does

Before you start shopping around for an accountant, it’s important to make sure you understand what they can and can’t do for your therapy practice.

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A small business may hire an accountant to help them:

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• File their taxes accurately and on time
• Identify and take advantage of tax deductions
• Depreciate expenses 
• Plan how to use tax credits
• Create business plans
• Choose a business structure
• Interpret and analyze financial reports
• Create financial projections
• Make plans to expand their business
• Prepare for economic recessions
• Plan how to take advantage of new business opportunities
• Set up payroll and prepare to hire staff
• Sell their business
• Attract investors to their business

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Some of these may be relevant to your therapy practice now, some may be relevant to it later, and some may not be relevant at all. But if you’re planning any important financial undertaking, a small business accountant is a powerful asset.

Accountants vs. bookkeepers

An accountant works from the assumption that you’re already recording financial data about your company, and that it’s accurate. That data includes records of:

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• Income (each time your practice earns money)
• Expenses (each time your practice spends money)
• Assets (items of cash value your practice owns)
• Liabilities (money your practice owes)
• Equity (investment in the practice)

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If you don’t have any of this information, you shouldn’t be concerned with hiring an accountant. First, you should hire a bookkeeper.

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A bookkeeper records and categorizes your practice’s business transactions on a daily basis. They may also use that data to generate financial reports. In turn, your accountant uses that information to file taxes, create financial projections, and so on.

Read more about the difference between an accountant and a bookkeeper.

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Know when your therapy practice needs private practice accounting support

Your practice can benefit from hiring an accountant at different stages of growth. There is no one-size-fits-all timeline, but keep an eye out for the following indicators. It’s time to book a meeting with an accountant when you:

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• Make a major error filing your taxes
• Find tax season has become overwhelming
• Owe back taxes, but aren’t sure how you’re going to pay them
• Are being audited
• Need help planning a budget for your therapy practice
• Need to find ways to reduce expenses, but don’t know where to start
• Plan to rent a new office space, and aren’t sure how it will impact your month-to-month finances
• Plan to hire your first employee and set up payroll
• Want to change business structures
• Intend to partner with another therapist, and start a group practice
• Need to create a business plan

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Still weighing whether you need one at all? Here are 7 reasons to hire an accountant for your therapy practice. Otherwise, use these milestones to decide what kind of help to hire, and when.

Starting your practice

An accountant can help you weigh business structures and understand the tax implications of each. If you decide to form an LLC or PLLC, they can help you plan for it (many therapists also work with an attorney or formation service to draft and file Articles of Organization and an Operating Agreement).

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This is typically a one-time consult. You won’t need to hire an accountant to work for you on an ongoing basis yet.

New solo practice (Schedule C filer)

If it’s your first year filing taxes as a self-employed therapist—meaning you report your revenue and expenses on Schedule C of Form 1040, and need to pay quarterly estimated taxes—an accountant can guide you through the process.

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It’s important to get help at this stage because taxes on your income are not automatically withheld. You’ll need to calculate your estimated payments and correctly report your income on Schedule C.

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For most therapists in their first one or two years of practice, it’s enough to hire an accountant for seasonal help: tax prep, and any retroactive bookkeeping that may be necessary to get your financial records in order.

Growing solo practice (profit approaching $60K to $100K)

As your practice grows, it’s time to consider electing S corporation status. For many therapists, it starts to make sense somewhere between $60,000 and $100,000 in annual profit, once the tax savings outweigh the extra costs (such as payroll and additional accounting fees). The right point depends on your situation.

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An accountant can help you determine when to elect S corp status. If you haven’t already formed a business entity (such as an LLC, PLLC, or corporation), they can help you decide which one fits your practice.

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At this point, it makes sense to hire an accountant on a continual basis so they can provide ongoing guidance and, if necessary, payroll services.

S corporation therapy practice

Once your therapy practice elects S corp status, you should have an accountant working for you on an ongoing basis to:

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• Help you set a reasonable salary
• Run annual salary reviews
• Set up and run payroll
• File payroll tax forms (such as Forms 941 and 940, and W-2s)
• Prepare and file your Form 1120-S and Form 1040 tax returns

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S corp tax filing and planning is complex. Trying to handle it alone can lead to costly errors.

Starting a group practice or hiring clinicians

Partnering with or hiring other clinicians brings a host of new complexities to your bookkeeping and accounting routines.

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You’ll need to manage salaries and distributions, tax withholding, and worker classification (W-2 employees vs. 1099 contractors).

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Even if you’re building a group practice from the ground up, having an accountant is essential. They should work for you on an ongoing basis to help guide decision-making, as well as handle annual tax filing.

IRS audit or notice

If you receive a letter from the IRS indicating you have underpaid your taxes or made a mistake filing them, or if you’re audited, it’s time to hire a professional.

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A CPA, enrolled agent, or tax attorney can represent you in dealings with the IRS. That helps resolve issues quickly and prevents errors that could land you in hot water.

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In most cases, you will only need to hire an enrolled agent or CPA until the issue with the IRS is resolved. But an audit or a letter from the IRS may also serve as a wake-up call—a sign that your practice would benefit from the ongoing guidance and tax filing help an accountant provides.

Identify your therapy practice’s accounting needs

Once you’ve reached a point when you know you need an accountant’s help, it’s time to think about what kind of accounting support your practice needs.

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Many small businesses have a bookkeeper to support them with day-to-day financial tasks, and only go to see an accountant during tax season. Their accountant helps them identify deductible expenses, files their taxes for them, and charges a one-time fee.

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In some cases, a business may be dealing with an ongoing situation that requires continuous support, in which case they may hire an accountant on retainer. Examples include businesses that are being audited, or planning a merger or sale.

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Finally, there are many accounting firms that provide both bookkeeping and accounting services. In that case, a business typically pays a monthly fee that covers both bookkeeping (recording and categorizing transactions) and end-of-year tax filing. 

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In that case, if the business needs extra support—to file articles of incorporation, for instance—they can expect to pay an additional one-off fee on top of their monthly subscription cost.

What is a certified public accountant (CPA)?

All certified public accountants (CPAs) are accountants, but not all accountants are CPAs.

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CPAs are licensed by the board of accountancy in their state. To earn a license, an accountant must pass the national Uniform CPA Exam and meet their state’s education and experience requirements—typically 150 semester hours of education (some states now offer a 120-hour pathway) and one to two years of supervised experience. CPAs also complete continuing education, including ethics.

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A CPA may charge more than a non-CPA accountant, though rates overlap widely. One of the reasons small businesses work with CPAs is because it confers an image of professionalism and trustworthiness. For instance, a wholesaler may be more willing to extend credit to a retailer who has a CPA working for them, as opposed to one who does not.

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CPAs, enrolled agents (EAs), and attorneys are the only tax professionals with unlimited rights to represent you before the IRS. For a full comparison of CPAs and EAs, including which one fits your practice, read the difference between an accountant, bookkeeper, CPA, and EA for therapists.

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Determine your therapy practice’s accounting budget

Once you’ve determined what kind of support you need from an accountant, it’s time to figure out how much you can afford to pay.

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Accountant fees vary from state to state and city to city. Other factors also affect an accountant’s rate—such as their credentials, how many years of experience they have, specialized areas of knowledge, and how complex your practice’s finances are.

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In some cases, an accountant will charge a flat fee for a particular service, such as preparing your annual tax return. Our guide to accountants, bookkeepers, CPAs, and EAs for therapists cites the National Society of Accountants’ 2023 fee survey: a sole proprietor with a non-itemized return could expect to pay something like $279 to have their taxes filed, and $392 for an itemized return (on average). Once a practice incorporates, its annual tax return starts costing closer to $1,000.

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In other cases, an accountant will apply their hourly rate. Meaning, it’s difficult to discuss the price of hiring an accountant in the abstract. The amount you pay will depend upon the individual accountant’s hourly rate, and how long it will take them to complete a particular task for you.

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Any qualified accountant you meet for a consultation should be able to quote you a price range for a particular task.

Consider alternatives to hiring an accountant

If you need to prepare financial reports, file your taxes, and calculate and make quarterly estimated tax payments, you can hire an accountant to help you. However, there are less costly alternatives worth exploring:

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• Accounting software: Self-service tools like Xero or QuickBooks Online can help you manage basic accounting tasks, so long as you invest the time learning how to use them.

• Complete bookkeeping and accounting solutions: Increasingly, remote solutions like Heard are able to provide your business with a remote team that handles all your bookkeeping, financial reports, and tax filing for you, for one flat monthly rate. Heard specializes in helping therapists.

Choose a single accountant or large firm

If you decide to hire an accountant, you will need to either hire a single-accountant firm or a larger firm with many accountants working for it.

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A single-accountant firm typically consists of one accountant, plus one or more office administrators. It may also employ a bookkeeper, so the firm is able to handle both bookkeeping and accounting tasks for clients.

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A large firm like H&R Block has many accountants working for it—sometimes thousands. When you hire a large firm, you may have a single individual managing your account, and working with you face-to-face. But your actual tax preparation and other accounting tasks are handled by a team of accountants.

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The benefit of a single-accountant firm is that you get one-on-one support from the professional doing your accounting. They will get to know your business over time, and may be able to provide more in-depth advice particular to your situation.

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The benefit of a large firm is that it may cost less, at the expense of one-on-one, personalized support.

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Interview prospective accountants for your therapy practice

Before you hire an accountant, you should be prepared to ask some questions to make sure they’re a good fit for your business.

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Some smart questions to ask a prospective accountant include:

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• What is your fee?
• How long have you been in business?
• Do you work with any other therapy practices? If so, what are some unique challenges therapy practices face, and how do you address them?
• What is your philosophy when it comes to tax filing? Would you consider yourself more assertive (taking advantage of every deduction possible) or more cautious?
• What kind of software do you use?
• How do you prefer your clients to provide financial information? E.g., as email attachments, imported directly in software, as a hard copy, etc.
• What security measures do you use to make sure your clients’ financial data is safe?

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Any qualified accountant should be prepared to answer these questions. It’s a good idea to speak to several accountants before choosing one.

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One of the best tools at your disposal when looking for an accountant is referrals from other therapists. Reach out to other therapists in your network, and see if any of them can connect you with accountants specializing in therapy practices.

Accountant hiring checklist

Use these guidelines to help you decide on the right accountant for your therapy practice.

Credentials and legitimacy

• Verify CPA licenses on CPAverify.org. This free lookup from the National Association of State Boards of Accountancy (NASBA) covers most states and flags disciplinary history reported by state boards. If a CPA isn’t listed, check with your state board of accountancy.
• Check the IRS Directory of Federal Tax Return Preparers. It lists CPAs, enrolled agents, attorneys, and Annual Filing Season Program participants who hold a current preparer tax identification number (PTIN). If someone claims one of these credentials but isn’t listed, ask why.
• Confirm representation rights. If you might need audit help, choose a CPA, EA, or attorney—they have unlimited rights to represent you before the IRS. Annual Filing Season Program participants have limited rights (only for returns they prepared and signed), and other paid preparers can’t represent you at all. See CPA vs. EA: which one do you need? for more.
• Confirm they sign the return with their PTIN. The law requires paid preparers to sign returns and include their preparer tax identification number (PTIN).
• Never sign a blank or incomplete return. Only sign once the return is complete and you’ve confirmed it’s accurate, and check that any refund goes to your own bank account—never the preparer’s.

For therapists

• HIPAA. Find out whether a prospective accountant is willing to sign a HIPAA business associate agreement (BAA). It’s possible they will see confidential client information—like client names or insurance claims—when preparing your taxes.
• Therapy practice experience. Determine whether a prospective accountant has experience with issues specific to therapy practices, such as insurance reimbursements, S corp reasonable salary, and W-2 vs. 1099 classification for group practices.
• Proactive planning vs. prep only. Ask whether your prospective accountant offers proactive tax planning or only tax prep. Proactive planning looks ahead to your practice’s long-term goals; tax prep is just about meeting filing requirements.

Engagement terms

• Get an engagement letter. If you hire an accountant, they should provide you an engagement letter describing services, fees, and deliverables.
• Clarify the fee structure. Flat, hourly, or monthly? Ask about surcharges for messy records, extensions, or late documents.
• Ask about response time and who you’ll work with. At a larger firm, the person you meet may not be the one doing the work. Make sure you’re clear on who will be doing the actual filing for your practice.
• Document delivery. Ask how they’ll securely receive your documents (online portal vs. email) and what security measures they use to protect your data.

Red flag

• If an accountant promises to complete your tax return without seeing your financial records—including receipts for deductible expenses—then it’s time to walk away.

Frequently asked questions

What is the difference between an accountant and a bookkeeper for therapists?

A bookkeeper records and categorizes your practice's transactions day to day. An accountant uses those records to file your taxes, create financial projections, and help you make financial decisions, so if you don't have accurate records yet, hire a bookkeeper first.

When does a therapy practice need an accountant?

Signs include a major tax filing error, an overwhelming tax season, back taxes you can't pay, an audit, or plans to hire your first employee, change business structures, or start a group practice. Once you elect S corp status, you should have an accountant working with you on an ongoing basis.

How much does an accountant cost for a therapy practice?

It depends on location, credentials, experience, and how complex your finances are. Based on a 2023 survey, a sole proprietor could pay around $279 for a non-itemized return and $392 for an itemized one on average, while an incorporated practice's return costs closer to $1,000.

Who can represent a therapist before the IRS in an audit?

CPAs, enrolled agents (EAs), and attorneys are the only tax professionals with unlimited rights to represent you before the IRS. Annual Filing Season Program participants have limited rights, and other paid preparers can't represent you at all.

What should therapists ask before hiring an accountant?

Ask about their fee, how long they've been in business, whether they work with other therapy practices, their approach to tax filing, and how they keep your data secure. Also ask if they'll sign a HIPAA business associate agreement, and walk away if they offer to file without seeing your financial records.

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An accountant can help you identify deductible expenses, and save money on your taxes. But you don’t need to hire an accountant to take advantage of tax deductions right away. Check out our complete list of tax deductions for therapists.

Summary

• When your practice is new (and you’re a sole proprietor), you can hire an accountant on a seasonal basis to prepare your tax return
• As your practice grows (or if you elect S corp status), hire an accountant to work for you on an ongoing basis
• If the IRS raises issues with your tax return or decides to audit your business, hire a CPA, enrolled agent, or tax attorney—any of them can represent you in dealings with the IRS
• Providing organized records, including a complete set of books for the year, can help reduce the cost of filing taxes with an accountant (they may charge extra for messy records or retroactive bookkeeping)
• While hiring an accountant costs money, it can save you from potentially greater expenses later on in the form of tax filing errors and IRS penalties

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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.

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

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