What are some tax basics I should know as a sole proprietor?

Tax season is upon us, and for private practice therapists, it can often come with feelings of shame and confusion. If you're a mental health professional still feeling lost as to where to begin when filing your annual return, we're here to help! At Heard, we want to make sure you're as prepared as can be for filing your returns, while providing tips and tricks to help make your relationship with the IRS understandable and less stressful.

If you're filing your taxes as a sole proprietor, here are some basic details that are important for you to know heading into tax season:

What does it mean if I'm filing as a sole proprietor?

As a sole proprietor, you are taxed as an individual. You report all income and expenses on your personal tax return. The only difference between filing as a sole proprietor as opposed to an individual is that you must complete a Schedule C with your Form 1040.

You can find your income tax bracket can be found by looking at the annual tax table. Your business income is your personal income.

What is a Schedule C?

You will need to file a Schedule C, Profit or Loss from Business, which is a basic, two-page schedule.  

What information do I need to fill out a Schedule C?

Sole proprietors will need to have the following information to complete the Schedule C:

  • IRS instructions
  • Social Security Number
  • Employer Identification Number
  • Financial statements, and specifically, income statements showing earnings and expenses.
  • Records and receipts for planned tax deductions
  • Mileage records, if you plan to take business vehicle deductions

How do I fill out the Schedule C?

There are five distinct parts that need to be filled out to complete your Schedule C, four of which relate to your private practice:  

  • Income is where you report all of your practice earnings for the year. This can be found on your financial statements.
  • Expenses is where you include all of your practice expenses for the year. This can be found on your financial statements.
  • Information on your Vehicle is for sole proprietors who want to account for the Business Use of Vehicle deduction.
  • Other expenses are for any other expenses that you would like to report that you couldn’t find a location for in the above sections, namely the expenses section.

As a private practice owner, you are selling your services and not physical goods, and as such, you do not maintain inventory on hand. This means you do not need to complete the Cost of Goods Sold section.

Do I need to file more than one Schedule C?

If you run multiple, non-related businesses, then you will need to complete a separate Schedule C. Be sure to talk to your accountant or the Heard team if you have separate, distinct forms of income.

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.

Other Blog Posts: