How To Avoid A Panic Attack When It’s Time To Pay Taxes!
Paying taxes is a crucial topic that NO one talks to us about when we are starting out in private practice. If you’re new to this, my guess is this topic is VERY STRESSFUL.
Filed under “Things they didn’t teach us this in graduate school”, managing your money and paying taxes is a big one. No worries, I’ve got you covered here with some crucial information and tips straight out of my Master Course, Everything You Need To Know About Private Practice But Didn’t Know To Ask.
When you own a small business (and yes, running a private practice does in fact mean you are a small business owner) you need to pay estimated taxes every quarter in addition to filing your taxes at the end of the year.
Here’s where I’m going to give you some advice that you won’t want to follow if you are just starting out. Because it’s going to cost a bit of money. And none of us like spending money, especially before we are making much money. But trust me on this. Get a CPA. It will cost you a few hundred dollars, maybe less. But it is worth every penny. If that feels hard to take, think of it this way. If the accountant charges you $200 for a consult (and BTW, some may do it for free), think of how many sessions you need to do to pay for that. Probably two sessions. That’s it. Only two sessions to buy some crucial professional tax guidance. Totally worth it.
Right this minute, they can tell you all about estimated taxes, how much you should pay, and how to do that. They will also make helpful suggestions about how to track your income, keep your records, etc.
At the end of the year use the CPA to file your taxes. Because, unless you understand things like paying self-employment taxes and how and what to claim as deductions, there’s a lot of ways it can go wrong. We are not tax experts, we are therapists. Delegate this one out.
But If you don’t want to do that right now, follow these steps.
You will need to pay both Federal and State taxes (unless you live in a state where there are no state taxes). You can do this either by snail mail or online. If you choose snail mail, you can find the Federal forms you need to send in by simply googling, “Federal estimated taxes form”. It will bring up the 1040-ES form (Again, don’t take tax advice from me. Double check with a CPA to make sure this is the form you want to use for your specific situation.). Simply fill it out and send it in with a check. If you want to do it online, the Federal site is www.eftps.gov. Once there, it will prompt you to create an account. You can then use that account to pay estimated taxes each quarter.
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You will pay estimated taxes in four quarterly installments over the year. The payments are due the same dates every year: April 15, June 15, September 15, and January 15.
If you pay state income taxes, you will need to google to find the site for your specific state. They are due on the same dates as the Federal estimated taxes. You will need to make separate payments to the Federal government and to the State government.
But how much do you pay? Well, this is where you should probably talk to a CPA, not me. But if you want to solo here, you need to try to understand what your tax rate will be at the end of the year. Then, each quarter you simply pay that percentage on your income for the quarter.
SUPER IMPORTANT TIP:
Set aside money as you go for your taxes. Seriously. Otherwise each quarter you will have a panic attack when you suddenly have to come up with several thousand dollars to plunk down on the estimated payment.
Here’s how I do it. I have a savings account dedicated solely to estimated taxes. Every single week, I figure out my income for that week. I then take the percentage I will need to pay in both Federal and State taxes on that income and move that amount to the savings account. (Example. Let’s say my tax rate is 10% Federal and State taxes combined – ha, don’t I wish! But let’s say it is. If I make $2000 for the week, I will need to pay $200 in taxes on that. So, I move $200 to the saving account for that week). I don’t touch this savings account for anything else. Then when it comes time to pay the quarterly taxes, the money is sitting there. Panic attack averted. You will thank me a million times for the tip if you do it. It will save you buckets of stress four times a year and if you do it right, you also won’t owe anything when you file your taxes at the end of the year. Heck, you may even get a refund.
Honestly, taxes don’t need to be stressful at all. Just get your system in place to track your income and expenses, set aside money every week, and pay your estimated taxes every quarter. At the end of the year, use a CPA to file for you. WaLa. Done. No stress.
To find out more crucial information about the steps you need to take when starting your private practice check out The Master Course, Everything You Need To Know About Private Practice But Didn’t Know To Ask. To get the same information in more affordable, bite size pieces, don’t miss the Mini Courses!
I love therapists build successful private practices! For more great information like this to help you build yours, make sure to check out the Master Course and the Mini Courses. I’m here to support you and I want to help you reach your dream!
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