The tax season is moving into full swing.
People and businesses get ready to file their yearly income tax.
While business filing dates can vary with the choice of business structure and date of formation, most small business owners file their business taxes when they file their personal tax returns.
Filing taxes should be simple and easy… in theory, but often, the reality is very different.
Even though most of us are organized, we utilize accounting software and online services and hire out tasks, pieces of information invariably go missing. But to complete the return, we must find whatever has been misplaced.
And that, along with a looming deadline, can be stressful.
Stress may bring up irrational fears of making mistakes that could lead to trouble with the IRS. And just the word “IRS” alone may evoke fear, even for the most honest, law-abiding, tax-paying citizen.
The best way to deal with tax stress is to get a head start on tax preparations. Start early to gather everything you need so you can file your return on time,
To give you a leg-up, we prepared a checklist of everything you should consider and include in your tax preparations.
While the list is detailed, some items may not apply to your situation, while others may not have been included.
Now, let’s go through the checklist…
#1 Gather Essential Business Documents
While this is an essential step, it may take the longest. Make sure you have all the necessary financial documents in one place.
Keeping these records organized throughout the year will make tax time much more manageable.
Below are the business documents you may need to prepare your return. Reviewing them to determine whether you can improve your business operations and activities is good practice.
Profit and Loss Statement (P&L):
This document, prepared by your bookkeeping software, summarizes your practice’s annual revenue and expenses. It provides an overview of your business profitability and is essential for tax filing.
If your P&L shows that your expenses are significantly higher than your revenue, consider adjusting your rate structure, cutting costs if feasible, or combining both approaches in the coming year.
Balance Sheet:
This report shows all your business’s assets, liabilities, and equity, allowing you to assess its financial health.
Bank & Credit Card Statements:
Ensure all bank and credit card statements for the year are available. All statements should be (… should have been) reconciled with your accounting records to help catch any discrepancies and track and categorize all spending.
Invoices & Receipts:
Organizing all invoices, e.g., for patient visits, insurance reimbursements, and any additional services (consulting, speaking, etc.), to ensure that all income is accurately reported.
Similarly, keeping track of receipts for business expenses helps in maximizing deductions. Consider using an expense-tracking app to simplify this process.
Previous Year’s Tax Return:
It’s a good idea to keep last year’s return close by. It will help compare numbers, carry forward deductions, and spot significant financial changes year over year.
Payroll Records:
If you have employees or work with independent contractors, ensure you have all federal and state payroll reports, W-2s (for employees), and 1099-NEC forms (for contractors).
Ensure Payroll Tax Compliance:
If you have employees, make sure payroll taxes (Social Security, Medicare, and unemployment taxes) are withheld and remitted. If you come across errors, correct them without delay.
File 1099-NEC Forms:
If you hired independent contractors, issue Form 1099-NEC by January 31 to avoid IRS penalties.
Prepare for Next Year’s Taxes:
Commit to implementing a monthly reconciliation process to keep financial records updated.
Use cloud-based accounting software for real-time recording and tracking.
If you do your payroll manually, use payroll software to handle tax filings automatically and set quarterly tax payment reminders to avoid year-end surprises.
#2 Make Sure All Income is Accounted For
Take extra care to ensure all revenue sources are appropriately accounted for. Unreported or underreported income, even by mistake, can lead to an audit and result in significant penalties.
Income may be overlooked if it is unusual, such as a one-time paid presentation or special class you were invited to teach.
EHR & Billing Software Review:
Utilize your tools…
Run an annual revenue report from your electronic health record (EHR) system and cross-check it with bank deposits. Sometimes, insurance payments take weeks to process, so reconciling can help spot unpaid claims.
Credit Card and Third-Party Payment Processors:
If you accept payments via Stripe, PayPal, Square, or Zelle, check for a 1099-K form.
Other Revenue Streams:
If you conduct speaking engagements, sell online courses, or provide consulting services, be sure to include those earnings. Overlooking additional income can result in inaccurate tax filings.
Prepare for Next Year’s Taxes:
Stick to a single business account for all transactions. Avoid, or better yet, do not mix personal and business finances.
To reduce human errors, automate business processes as much as possible, including invoicing and payment tracking.
# 3 Track and Categorize Expenses
Qualified deductible expenses lower your taxable income, so it’s critical to categorize them correctly. While your bookkeeping software will track them for you, it’s helpful to understand what to track:
Operational Costs, including:
Office Rent/Mortgage:
Your rent is fully deductible if you lease office space. Your mortgage interest may be deductible if you own or purchase your clinic space.
Utilities & Internet:
Your practice’s water, electricity, internet, and phone bills are considered necessary business expenses and deductible.
Medical and Office Supplies:
Gloves, syringes, PPE, pens, paper, and furniture. Keep track of everything; even small purchases add up over time.
Software & Subscriptions:
Monthly fees for EHR systems, telehealth platforms, or continuing education memberships should be recorded.
Business Insurance:
Malpractice insurance, general liability insurance, and workers’ compensation (if applicable) are all deductible expenses and must be tracked and recorded.
Professional Fees:
Renewing your state license, board certifications, and memberships in professional organizations (AANP, state NP associations) are all tax-deductible.
Marketing & Business Development, including:
Website Hosting & Maintenance:
The cost of maintaining your website and keeping it online, along with any domain registration fees, is deductible.
Advertising & Branding:
All advertising fees are deductible. Social media ads, Google Ads, SEO services, and print marketing qualify as business expenses.
Prepare for Next Year’s Taxes:
Create distinct expense categories in your accounting software to separate deductible expenses automatically and avoid duplicate entries.
Keep digital copies of receipts in case of an IRS audit.
#4 Maximize Deductions and Tax Credits
You can significantly lower your tax bill by taking full advantage of all deductions and credits available to you. It’s best to consult with your tax professional to receive all tax benefits.
Home Office Deduction:
If you have a dedicated space at home for administrative work, a portion of rent, utilities, and internet may be deducted.
Depreciation on Equipment:
Large purchases, like exam tables, computers, or other medical equipment, can be deducted immediately (Section 179) or depreciated over time.
Health Insurance Premiums:
If you’re self-employed, your health insurance premiums for yourself, your employees, and your family may be deductible. Again, consult with your tax professional for the best approach.
Qualified Business Income Deduction (QBI):
If your practice is a sole proprietorship, LLC, or S-Corp, you may qualify for an up to 20% deduction on net business income… yes, check with your tax professional for current credits and rules.
Retirement Contributions:
Depending on your situation, you may contribute to a SEP IRA, Solo 401(k), or SIMPLE IRA. Contributions reduce your taxable income and help build retirement funds (consult with a tax professional).
Prepare for Next Year’s Taxes:
Plan purchases strategically. For example, buy equipment before year-end so you can increase deductions.
Consider setting up a retirement plan to lower taxable income and save for the future.
#5 Work with a Tax Professional
Even if you do your own bookkeeping, having a CPA review your taxes can help with:
Tax Law Changes:
Tax laws affecting healthcare providers can change, and a tax professional can ensure compliance.
Business Structure Optimization:
Once your income grows, changing from an LLC pass-through entity to electing S-Corp status could reduce self-employment taxes.
Prepare for Next Year’s Taxes:
Meet with a tax professional in Q3 rather than waiting until tax season. You may get more time and attention for your specific situation and issues.
Ask about ways to reduce taxable income before year-end and implement tax-saving strategies.
The Final Review Before You File...
Make sure to double-check all financial reports for accuracy.
File no later than April 15 (or file for an extension), or sooner if possible.
Retain copies of all tax documents in case of an audit.
To sum up…
By following this checklist, Nurse Practitioners in business can stay organized, file their taxes on time, and avoid penalties.
I’m sure you’ll agree that implementing even small changes throughout the year will make tax preparation easier and less painful the next time around.
How do you stay organized throughout the year so you’re ready at tax time? Let us know and leave your comment below.