187 Alan Pruitt CPA Helps Therapists Keep More of What They Earn

Taxes are not just an April problem. They are shaped by the systems and decisions you build throughout the year.

In this episode, I sit down with CPA Alan Pruitt from The Therapist CPA to talk about what therapists often miss when it comes to taxes, bookkeeping, and profitability in private practice. Alan works exclusively with therapists, and he breaks down the financial concepts clinicians actually need in plain language.

We explore why so many therapists feel stressed even when they are fully booked, how messy bookkeeping leads to missed deductions, and why understanding your numbers is critical for long-term sustainability.

This conversation is not about becoming a tax expert. It is about building enough clarity and structure to support the kind of practice you actually want to maintain.

In this episode, we cover:

• The three financial numbers every therapist should track
• Why therapists often overpay in taxes without realizing it
• How S Corps and retirement planning can reduce tax burden
• The connection between financial sustainability and burnout prevention

If you are building a private practice, tax planning is not separate from clinical sustainability. Clear systems reduce stress, improve decision-making, and help you keep more of what you earn.

Want to work with Alan directly? Check out The Therapist CPA.

Want to learn more? Check out this month's free resource from Kate Walker Training. 

Want deeper support? Inside the Step It Up Membership, we work through supervision structure, documentation systems, ethical business practices, and sustainable private practice growth designed specifically for therapists and supervisors.

Get your step by step guide to private practice. Because you are too important to lose to not knowing the rules, going broke, burning out, and giving up. #counselorsdontquit. 

Transcript

The IRS Rewards Program Mindset

SPEAKER_01 0:00

The IRS is the largest rewards program there is in the US. People don't realize that, but that is really the truth. Because guess what? If you change the facts, you pay less in tax. Sounds crazy, but it's true.

SPEAKER_00 0:23

Welcome to the MSTerapist building practice, but the running words are a little bit working smarter, not harder. Now if you're your host, Dr. Kate, welcome to the first part of the comment has quickly become an indoor part of the family. So you've launched your private practice. Congratulations, that's huge. But now it's tax time, and if you're feeling a little lost, a little overwhelmed, or maybe a little blindsided by what you owe, that's completely normal. The business side of private practice doesn't always come with a manual, but today's guest has basically written one. Alan Pruitt is a CPA who works exclusively with therapists and private practice owners. He's here to help you understand your numbers, protect your income, and go into this tax season with a lot more confidence. And now, CPA Alan Pruitt. So, Alan, welcome. And I'm going to turn it over to you to introduce yourself and what you do and how you help counselors get ready for tax season.

SPEAKER_01 1:27

Sure thing. Thanks so much for uh for having me, Kate. It's uh it's truly an honor to be here talking with uh with your crew. So I am Alan Pruitt. I am a CPA. I am the CEO and founder of the Therapist CPA firm. And uh really what we do is simple. We try to help therapists run a more profitable, more sustainable private practice by ensuring that everything on the back end from finances to taxes to bookkeeping and tax planning are all running smoothly together, where we want to reduce your overall tax liability to make you more profitable and make sure that you know how much money you're you're making, how much you're keeping, and how much you can save overall to reach your overall goals.

SPEAKER_00 2:12

Awesome. So this evening you get the one CE for general. And I've mentioned this before. BHEC has put us on the honor system. And so at the end of the this webinar, I might say something like, Hey, you know what? This counts for ethics or uh this counts for supervision or something like that. But as of this moment, it's gonna be general because Alan knows how to tailor this stuff for counselors and what we need.

SPEAKER_01 2:37

Well, I am super excited to be here. So I want to know if I am allowed to give you guys an immense amount of value today because because you guys are uh part of uh Kate's badass group. Well I want to make sure to do is over-deliver for you guys. So I have created a web page specifically for you guys. We have a few different things on that page that I want you guys to make sure you check out, download. I have an online community for therapists. It is free where we connect, where we connect with other therapists. I am there every week. And also, I have some downloads that you might need to know, especially as we're in tax season, as we are, you know, hopefully some of you have done taxes, maybe some of you guys have not. For those of you who haven't quite filed yet, there's gonna be some good stuff in here today for you. And for those who actually have, then guess what? It's never too late to start tax planning for the current year. And so I'm gonna give you some stuff that that might help you as well. All right, so I want you guys to imagine this. It is uh an amazing upcoming Saturday afternoon, right? You uh, you know, relax. How how many of you guys have have kids? Um, as you know, it might be a little bit loud in the house if you have young kids. I have three myself, eight, five, and two. So I can completely understand. It's a busy life that I live over here. And how I got into this, I didn't mention this earlier, is that my wife is actually an LPC. And so she runs her own group practice, which is how I got, you know, into helping private practice owners and therapists. Just realizing that you guys do not get enough business knowledge when you step into a private practice. And for those of you who are contractors, who are 1099 contractors, guess what? It is no different than running your own practice yourself. The IRS treats those two things exactly the same. So all the same tax deductions you guys are able to get, even as 1099 contractors, even if you have a W-2. But imagine, especially for those of you with young kids, it is a Saturday afternoon, it's nice and quiet in the house. Maybe you have, you know, a nice snack, you know, everybody's gone, quiet house, right? What is the first thing that you want to do? Maybe sit down right in front of your computer and start on your tax return, right? That's the most natural thing that everybody wants to do on a Saturday afternoon, right? No, says nobody, right? I completely

A First Big Year Tax Shock

SPEAKER_01 5:10

understand, but that is why we are here to help take that burden off and save you some money along the way. So I want to tell you guys a quick story about a um an LPC who's who's a client of ours, and this was her first year or going into her second year in practice, and so she kind of started a little bit part-time the prior year, goes into her first year, absolutely crushing it, absolutely crushing about 20-ish clients a week, about 125 give or take per session, right? So she was killing it over 100k a year, over actually 130, almost to 140 because she had a few other different streams of revenue coming in, right? But one of the things that we always ask, how much are you keeping of that and how much are you saving? And she absolutely had no clue. She she really didn't, she just knew she was busy and that the money was coming in. Some of it was going out, some of it she got to keep, but couldn't really lay it out perfectly, right? And so after cleaning up and implementing some tax planning after we went into the next year, we were able to save her about 18,000 bucks after that first year. That first year was ugly because she did owe about it, it was about 14, 15K in that first year just because of what we talk about is self-employment tax. Because when you run your own business, you do pay self-employment tax on that money and you have to pay regular tax on that money. But that is why tax planning is so important. Because if you tax plan properly, you're able to write off all these things. And so you want the least amount possible that is taxable, right? So imagine this. So you, when you are a W-2 employee, you work for somewhere else, you worked at a practice, so on and so forth, right? You earn your salary, whatever that is. Let's say, you know, you're making, you know, 90K, right? They take out taxes every two weeks, right? You don't have to worry about it. You get to spend what's left out of that 90K once they take out taxes. But that equation flips when you're a business owner. When you're a business owner, you make all the money, whether it's 1099, whether you're solo, whether you're group, you make all the money. But here's the flip with the IRS: you get to spend the money before they tax you, right? So that is what we want to do. We want to make sure we're not missing anything that's a deduction that we can spend. And we want to have some strategic deductions too that lower that taxable income, right? Is everybody does that make sense so far to everybody? So unfortunately, we see this, and this is one of the most critical points is going into that second year full-time private practice is one of the most critical points that we see because that first year, you're just trying to put everything together. You just got duct tape and client sessions and trying to figure it out, right? And so, this is what we want to help with. And so this is why this conversation really matters, because no, no therapists I've ever heard yet started their practice because they love spreadsheets. But running a private practice means that you are running a business, and that comes with very real financial complexities, right? So it comes with surprise tax bills. If you're not paying quarterly taxes, if you don't really know what you're making, write off confusion, not maybe sure what to deduct, what not to deduct, so on and so forth. LLC versus S Corp, that's always a big one, which we'll we'll get into. Messy books, disorganized records, leading to missed deductions, all of that type of stuff. And then, as in the the LPC that I just mentioned earlier, busy. Well, now she was profitable, but a lot of times you're busy but not profitable, and that's what we want to make sure of because you don't have a clear picture of what you're actually taking home, and so that's why pulling all these things together is really, really what helps. So, you guys have probably even told this to your clients before the oxygen mask principle, where you have to put on your mask first because you can't help others if you can't breathe. First thing they tell you when you get on an airplane through the safety briefing, right? If there's any turbulence, you have to put on your mask first before you help others. But I also hear from therapists who are almost ashamed to make a profit to make money to charge well for what you guys do for all the years of schooling that you've gone through for all the work and setting up your practices. It's almost like there's a little bit of guilt there that I've heard over the years working with therapists. And I want to get rid of that because to me, financial sustainability is clinical sustainability. And you have to be able to do that to make sure that you can, you know, are safe and good yourself before you help others because you got to spend your career helping others, but you have to be financially sustainable, or it becomes very, very hard to serve clients. And we all know the the phrase of being burnt out. And I've just seen it too often where you're working, working, working, tons of sessions, tons of clients, probably too many, but you're not making money at the end of the day and or making very, very little. And that's what we want to help you absolutely avoid. So the biggest tax mistake that I see therapists make, and as I mentioned, especially going into their second year, is treating

Tax Paying Season Versus Saving Season

SPEAKER_01 10:40

taxes like it's something that only happens in April. That is the first mistake, that is the first mindset shift that you guys have to get rid of. And I will tell you this as you see here, there are two tax seasons. There's tax paying season, and there is tax saving season. Right now, we're in tax paying season. So through March through April, uh, all you guys who've already done your taxes, guess what? Now you're into your second tax season, tax saving season, because it starts now. It starts now saving for 2026 to make sure that you are not overpaying in taxes this year. And so a lot of people get into it. Hey, you file once, write a check for whatever that number is and move on. But think of how your year went. Did you have more sessions than you wanted to? Were you working more than you wanted to? Do you start to feel a little bit of stress or anxiety when it comes to looking at your finances or your numbers or looking at your bank account? For those of you who have group practices, do you get a little bit of anxiety whenever a payroll time comes around, right? Like, do I have enough? Is it gonna clear? So on and so forth. You know what I mean? Do you have to take out money elsewhere? Like these are all the things that we want to help set you up properly to where finances are not a stressor. And so that's why tax planning year-round is so important because decisions that are made in January have more impact than any last minute move made in the following March. So think of it this way: decisions that were made last year in 2025, January through December. Hey, by the time we get to March now for 2025, for those of you who have done your taxes, guess what? The year's over. You know what? There's very little you can do about the year once it's over. Like you come to somebody like us, there's a few things that we can help you with. Hey, did you have this? Did you have that? We want to try to get you better organized. There's because you know, there's always the thing of people who spend personal or who spend business items out of their personal accounts. Hey, we try to dig those things up. The biggest culprit of this is Amazon, because that is one of the biggest things I see where people are buying business items, but they're using their personal card. Because we want to make sure the first thing that you always want to make sure of is that everything is going through your business account because we want to make sure that all of those deductions are being able to reduce that taxable income, which is what reduces your overall tax bill. So that's why we say, hey, the best time to reduce your tax bill was at the start of the year, January 1st. But the second best time is right now for 2026. So that's why I want you guys to start moving towards tax savings season now. So, hey, even if you have filed your taxes or even if you haven't, you can still start planning for 2026 right now. And guess what? The IRS is the largest rewards program there is in the US. People don't realize that, but that is really the truth. Because guess what? If you change the facts, you pay less in tax. Sounds crazy, but it's true. If you change the fact of you being taxed as an LLC versus submitting that S-corp election to be taxed as an S-corp, that is a fact change. If you change the fact of, hey, I went out to lunch with some people in my Kate Walker training group, and we had a nice lunch, but you use your personal card instead of your business card, and you didn't write on your receipt who you were with and what you talked about, that is a fact that makes that a business deduction instead of a personal deduction. So if you change the facts, you pay less in tax. The fact of setting up a retirement plan, a solo 401k, even if you are a solo practitioner or even as a group setting up a retirement plan, these are all facts that help reduce your overall tax liability. And so think of don't think of the tax code as a burden, it is just a set of rules with real rewards for the people who understand them. Because the I'll tell people this, it's just simple and point blank. The tax code was written for business owners, business owners and investors. That's who it was written for. Because think of it this way: when you are a business owner, more than likely you are someone who is going to employ others, right? You know, not everybody, but in general, you are. Guess what? That means you are helping out the economy so that the government doesn't have to. So for you taking on that burden, you get additional tax deductions, you get different breaks for running that business that people who are just W-2 don't didn't make the rules, but this is just simply how the rules are written for the IRS. So here's what we want to do: we want to make sure that we structure things correctly. We want to make sure you're writing off everything that you possibly can because that is what helps you keep profits. And we don't want you tipping the IRS because there's so many different things to be writing off. So, therefore, you are voluntarily overpaying if you're paying more than what you should. And I've noticed that there are so many things, once again, as business owners, that you could be deducting. We're going to get into a few of those different things. And of course, hey, I love tipping waitresses because guess what? That's a write-off, too. If you take that receipt and write on who you were with and what you talked about, pay it with your business card. But we don't want you to tip the IRS. So, three numbers that I think every therapist needs to know. You can't grow what you don't measure. And so, by knowing these three numbers, is what will set you apart and set your practice apart overall. You have to know your revenue per session, what you actually collect per appointment. And this does account for no shows and count cancellations, which you also need to be tracking, which you know, most EHRs do a good job at that, but how often are you actually looking at those numbers and putting those numbers into your revenue numbers to see how many sessions you actually had for the revenue that you made? The next big one is overhead per session. A lot of practitioners typically know in general about what their overhead is per month. However, we want to know what your overhead per session is. So that's both fixed and variable cost, right? So fixed cost being, hey, if you have a place that you have rent, that's uh is your fixed cost. However, variable cost, for example, if you're running a group, that variable cost might change with how much you have to pay simple practice based on how many therapists you have. Like, you know, that would be a variable cost. So overhead per session is your next thing that you need to know. And then if you have those two, that leads you to your profit per session. So that then means, hey, I know for every session that I see, I get to take home 50 bucks, I get to take home 60 bucks, whatever that number might be, your profit per session overall. We got a question. Why is it less helpful for using personal credit card for things we want to write off? Oh, because the reason because is you want to the only way that that's helpful is if you have a credit card statement that's a quote unquote personal card, but you use it specifically for your business. Because when you start commingling those things, that's how you lose deductions, especially if you're not tracking that all year. So if you just happen to have, hey, you have your business account, which I hope everybody does. Maybe you have a business credit card, so on and so forth, but you have a few items that are over here on a personal credit card. Not many people that I've seen are diligent enough to make sure that those things get moved over timely into their business account, so on and so forth. So that's why I say that, because we want to make sure we're not using personal cards unless, like, say the only caveat to that is if you have a personal card, but all you do on it is business transactions. Like, that's okay. Like then for somebody like me who's doing your bookkeeping, we just add that personal car into your accounting system with us, and then we track everything on there because everything on there is business. So that's okay. But you don't want to have a business car, a business bank account, a business car, and be spending stuff on your personal for business because then you just start losing deductions as you go throughout the year. That's an excellent question. Thank you, Andrea. Let's get into an example of why this is powerful and why you need to know it. So having your revenue, having your profit per session. So let's just say, hey, you have a starting session fee at 150. You have a 10% no show rate. So that reduces

Three Numbers That Run A Practice

SPEAKER_01 19:40

your actual revenue collected. So now we're actually down to $135 a session. But let's just say we have, hey, we have our simple practice. We need to pay our EHR or therapy notes or you know, whatever your EHR is. Let's say we have other business supplies that we have to buy. Let's just say, hey, our CEs, you're, you know, you're going to a conference, you pay for that. Hey, let's say you have an accountant that you're paying, you know, so all these different things go into your overhead, right? And so then you want to take that monthly number and divide your total sessions into that monthly number. And so that lets you know what your overhead per session is because sometimes I talk to clinicians who might be saying, you know, hey, I am fully virtual. Maybe I'm thinking about moving to groups, I'm thinking about, you know, adding rent and getting an office, so on and so forth. Hey, that's a big expense. That's where knowing your numbers like this really comes into play. Or honestly, just in general, this is super important for those who are solo practitioners. It is critical if you are a group practice owner. You have to know these numbers because so we had a client who, and we she unfortunately had to make some very hard decisions in her practice. She had a really good practice. She had about she had about eight, 10 people, uh, clinicians in her practice. And so she had hired somebody a few months earlier. This was last year, she had started working with us, and she had hired somebody, but she hired him on salary, but he just was not having that many sessions. And so, you know, y'all have probably seen this story, you know, group practice owners, but we ran the numbers for her, putting these numbers into perspective. And over about three months, she had lost about sixteen thousand dollars on him. Like she was actually losing money by paying him because paying him salary, paying him a flat rate, but he didn't have the sessions to really bring in the revenue and to back it up. And the only thing that was keeping her afloat is that she was working in in the practice, she's seeing plenty of people, and another thing that that I don't like. But I understand why it happens, is that she wasn't even paying herself yet. So she's actually making that up. So if you think about it, she's working to pay him. You see what I'm saying? Like, and she she had another job and she works in her practice. So she's literally working to pay somebody else who's costing her money. You know what I mean? And so, but that's what I have seen. You guys are such a great and thoughtful and careless bunch. But and I'll always tell all my clients, like, hey, if if you have to bring news to employees, you know, you you just have to one look at it as like a CEO, as a business owner, and two, you could let me take all the smoke, be like, you know what? I really wouldn't do this. However, my CPA is telling me that I have to do ABCD. I will take the heat for you, absolutely. But she had to make some changes to his compensation. Like it was just there's just no way around it. Because once again, that financial sustainability is the ultimate goal overall because she's on the verge of you know burnout herself. Honestly, she's probably past that point, but she's doing all of that, and he wasn't the only one. Like, she had a couple people that were, you know, basically costing her money, a few people who, you know, were about breaking even, which is great. But I'm sorry, we didn't we didn't get into business to break even, you know what I mean? And so we had to take a hard look at it, and she had to make some some you know, some tough changes that that weren't ideal, you know, from a personal standpoint, but she had to do it for the good of the business, you know. So that's why knowing these numbers is so critical and so important to make sure that you are thriving and that your business is thriving. Because guess what? If the business doesn't thrive, nobody does, you know what I mean? So that's why the these decisions are are very important. I want to ask you guys who knows what their profit procession is, what their overhead procession is, and what their revenue procession is. So at least, hey, awareness of this is the first thing that we need to know. So, hey, now you guys can look at it. And actually, in our in our community, I actually have a uh calculator that I created to help kind of go through this exact same thing to you know put this together. But yes, mark it down. These are the three things that you need to know. You need to know your revenue procession, overhead procession, profit procession. So be thinking about those items. Why do therapists overpay in taxes? And, you know, despite all there is about the tax rate, and guys, we just had a new tax bill that was passed last year. Don't know if you know, but a pretty large tax bill that changed a lot of the things in taxes for this year, which we're going through right now with clients. And actually, in our financial clarity toolkit on the website that I that I gave you, uh, we actually have a summary of all the major changes from the it's called the big beautiful bill that was passed last year. So the ones that you need to know, so absolutely free resource for you guys, but a lot of changes in taxes. But here's what the biggest things are that I've realized is that once again, as we kind of touched on a little bit, it's messy bookkeeping, like not knowing where things are, separating business from personal. As we talked about, you have to have those things separately just because it makes it so much harder to track your actual and legitimate tax deductions. We need to track expenses monthly. Once again, don't wait until tax season.

SPEAKER_00 25:40

Hey, quick pause. This month's free bonus is called Stop Working for Free, the Therapist Fee Reset. And it's updated for the clinician who's been adding value to the profession without making sure their practice actually supports their life. It'll help you see the full picture of what adding supervision, adding teaching, adding consulting really adds to your practice. Not just the hourly rate, but the professional case for making the move. Grab it free at KateWalker Training.comslash bonus. Now back to the episode. Hey, Al, and also I have a couple of questions further back. Christina and John.

SPEAKER_01 26:25

Oh, perfect. Okay, Christina, I'm confused by the no show rate in the formula. Is that the overall no show rate in a given period slash overall for the practice? So what that means is so how the no-show calculates into the formula is think of it this way is now here goes to another side point. I hope you guys are charging no show fees. That is another side point to get into. I hear from therapists all the time who are very reluctant to charge no-show fees. But no, that's a good question. Is the overall no-show rate in a given period overall for the practice? So it's per clinician, essentially, is what I'm talking about. Because think of it this way: if you have overall revenue and hopefully you're charging those no-show fees, then you actually want to see that percentage of, hey, what is your show rate versus your no-show rate? And you want to calculate that slightly differently. I'm kind of giving you a high level. We kind of calculate it slightly differently because if you are charging a no-show rate and you mix that in with all of your other full fees, then that brings down your overall revenue per session. So that's why we still want to track that. Does that make sense? Because let's say you have 10 sessions at 150, right? And then you have, or say nine sessions at 150, you have one session that maybe was a no-show, but you charge a charge a no-show fee of 50 bucks. Well, if you put all 10 of those together and divide by that number, that brings your overall revenue down per session. So that's why you want to have that in the calculation, but calculate it slightly separately, if that makes sense. Great question. Um, and Jackie said, if I want to do a $1,500 training and don't have enough money in my business bank account, can I transfer money from my personal account to my business account and pay from it there? Would that be best? Yes, that's actually the best way to do it. Yes, you you absolutely nailed it, Jackie. That's what I would do. I tell people this it's your business. So therefore, you can move money between the two, between your personal account and your business account. You just don't want to do commingling of paying personal out of business, paying business out of personal. You want to make that a clean transfer. So what you do is, and this is how you track it best. So, what you do is you say just what you say, hey, we have whatever in our business bank account. I'm going to move $1,500 from my personal account over to my business and then pay from it from your business, because then that makes your CPA very happy because we still see, hey, you are paying it out of your business account, and we just mark that $1,500 transfer as a contribution to your to your business. So, no, that is you nailed it. That is exactly how you should do that. Because I hear from some people like, oh, you know, I'll just pay for it personally and whatnot. Well, no, because you pay for that personally, and then let's say you go to a training, you have meals,

Clean Bookkeeping Without Spreadsheets

SPEAKER_01 29:20

you have travel expenses, all of that, then you're probably losing a lot of those deductions. We want all of that to be shown within your business account. I'm a firm believer that nobody should be running their practice on a spreadsheet. No one. So, as I have here, you want to use an actual accounting software. You want to use, we personally use Xero. QuickBooks is great. If you want a good low-cost option, if you are a solo practitioner only, I would say WAVE. So those are some very good tools to use. But the main two, Zero or QuickBooks, it is just an absolute must because it helps you see everything, it helps make sure you're putting everything in the right place and that we are writing off everything that you need to be. So, yes. So, for those of you who are on spreadsheets, we got to move you over to the actual accounting system. And then actually, I'll I'll tell you guys this. One of the things that we do in our online community, if you sign up for our community, we actually give you access to a zero account to use. So for those of you who are on spreadsheets, we can help you out there too. So that's a great low-cost option there too. And then what we want to do, we want to reconcile your accounts regularly because we want to catch errors, we want to have clean books, and we want to have confident tax filings. Because if we know throughout the year and back it up throughout the quarter and then throughout the month, that everything that you spent on business is in your business account, just like the question we got earlier. Hey, yes, move that money over to your business account, spend it from your business account. Then we are very confident by the time we get to the end of the year that everything that we spent for business is in one spot. Then you could take that to me, take it to your CPA, sit down on that Saturday afternoon and do it yourself. But you know that everything is in one spot, right? So that's why that is so important. Because then you're not having to track things up, down, left, and right and potentially lose deductions. Let's talk about that 25k and missed deductions that we were talking about earlier. So the situation was solo, 140k in revenue. She absolutely crushed it. Oh, it was the $18,000 tax bill. $18,000. How much does that suck? Like, just to be honest, like I hate delivering that news, but first year in in practice, if you're crushing it in revenue, and this is where this is where you can sometimes get caught up because if you have, and she would she was fully virtual too, so she didn't have a rent or anything like that. But what happens here is just like that scenario that I was mentioning, when you are a business owner, you make all the money over here, then you get to spend it, and then you pay taxes on what's left. But in this situation, if you don't have a whole lot of deductions to spend it on, that's when you get hit with a huge tax bill that looks ugly. Now, there are definitely some things that we can do within that to help you. We talked about S Corp. That's one of the things we're gonna go over. That is a huge saver if you have at least 40, I'd like more so 50k in net profit. S Corp's are a must. That helps with that because then that cuts down the amount of self-employment taxes you have to pay. And then we found a lot of legitimate deductions that weren't identified, stuff that she has spent elsewhere, weren't categorized, items that she could have had for her business and you know, were not writing them off for business. Perfect example. Like I say, hey, those meals, if you're traveling to a conference or to a training, everything that you paid throughout that trip should be a tax deduction. There was a lot of stuff like that that was absolutely missing. So although she was crushing it in the business, she had to overpay in taxes because all of these things weren't implemented throughout the year. And so the real problem, as I mentioned, it wasn't really the tax rate, it wasn't the IRS. It was just missing systems and not doing proactive tax planning, i.e., that second tax season that I talked about, the tax savings season, in which you guys need to be having these conversations throughout the year, looking at your numbers at least monthly, knowing what your revenue is overall, knowing what your profit is overall, and knowing what those numbers are per session. So we were able to once again file an S Corp election for this past year for 2025 for her because she came to us the prior year. So we just finished that, which the S-Corp dayline is actually on Monday. Just FYI.

When An S Corp Saves Real Money

SPEAKER_01 34:00

S Corps are absolutely phenomenal. So let's see. I think, yep, here we go. I was gonna say, I think we're about to talk about S-Corps now. Think of it this way high, high level for S-Corp. There's a lot of things that go into it, and typically it's worth exploring once your practice gets at least about, like I say, sometimes 40 makes sense if you're scaling, but at least 50K in net profit. Because what it does is it reduces your self-employment tax. So, what does self-employment tax mean? The IRS says that when you run a business, they're going to charge you 15.3% in self-employment taxes. If you ever worked in a W-2, you see those FICA taxes, Social Security, and Medicare that are taken out, right? What happens is when you're W-2, you split that amount 7.65 for employee, 7.65 for employer. But when you run your own business, the IRS charges you that full rate of 15.3 on all of your earnings in your LLC, in your sole prop, or even in your 1099. That's why I say for 1099 contractors, the IRS sees it no differently. So you pay that 15.3% when you are an LLC. However, when you switch over to an S-corp, what it does is the IRS requires when you move over to an S-corp that you pay yourself what they call a reasonable salary. So you now become a W-2 employee of your own practice, of your own business, and you only pay self-employment on that amount that you are paying yourself. So that's why it makes sense at least at 50K, because guess what? Let's just say perfect example, like the the client who I just mentioned earlier, 140k in revenue, 40k in expenses. That leaves $100,000 to pay self-employment taxes on, right? But now you're paying 15.3% on that hundred thousand dollars. That's 15 grand. Y'all could do that, man. That's 15 grand on top of the regular tax. But if you do an S-corp election, let's say, hey, we do it, we realize that a reasonable comp, and here's what reasonable comp is reasonable compensation is all the things you do in your business, not just the therapy. Because when you're running a business, you you wear many, many hats in a business. So we want to know all those different things because we truthfully want that reasonable comp number to be as low as possible, but reasonable in the IRS standards, because that is where you are not overpaying in payroll taxes, but you get to skip out on the self-employment taxes at 15.3%. So you actually want your reasonable comp to be as reasonable but as low as possible at the exact same time, if that makes sense, which is why we do reports like this, which is why there's a few hoops to jump through with an S-Corp, but that often saves clients at least eight to $10,000 to $12,000 in taxes by electing S Corp and making sure that you're not that whole profit that you're making is not subject to that 15.3%. Does that kind of make sense? That's a super high level. I know S Corps get kind of nuanced. So, next thing that we want to make sure we look at is retirement contributions, making sure that you are setting up some type of retirement plan. I know that's often sometimes the last thing we think about, but this is also why knowing what your profitability is per session is very important too, because we want to make sure that we add that piece into it as well. Because retirement contributions for a lot of plans are tax deductions. And if you're running a solo 401k, if it's just you, you can actually contribute north of like 60,000 bucks to a retirement plan. So, in the situation like I mentioned about the young lady who had that huge high tax bill, that's one of the things that we set up is she needs to set up a retirement plan because then that reduces taxable income too. When you're making really good money and you're profitable, you need to have a retirement plan. Plus, you just need to have one in general because it compounds over time. This is one of those things that often goes underutilized, but it is such a good tax deduction. So, as we kind of talked about on business deductions overall, we want to make sure that we're writing those off. Um, office, software, CEs, professional dues, supervision. Hey, CPAs are a write-off when you own a business. That's what I tell people is like, look, I get paid to help you save money, and you get to write off what you pay for me on your taxes. So making sure that you're you're covered overall. And I tell you this: so a lot of people often ask, like, hey, what do I get to write off within my practice, within my business? Well, crazy enough, the IRS actually does not have a list, they do not have a specific list saying, hey, this is the exact thing that you can write off because they honestly leave it up to you and it changes per business. But what they do say is that it has to be ordinary and necessary to your business for you to write it off. So, hey, you going to a conference that's going to help you become a better clinician? To me, that's ordinary and necessary to write off. Hey, you buying office supplies, you having rent, ordinary and necessary. So I always want people to, I tell people it's a little bit of a mindset shift, not to the fact of, you know, hey, can I write this off? I want you to have a quick mindset shift on how do I write this off? Like, hey, I want you to be thinking first, is there any way I can write this thing off in my business? Is this ordinary or is this necessary for my business? If it is, hey, that's what I'm here for. I tell clients, sometimes I get some good ones. I was like, oh, you know what? That actually can be deducted. Or sometimes I get what, you know, that was a really nice try, but unfortunately, we cannot write that one off. But you know what? I like the thinking there, but I always want our clients to be thinking that like, how can I potentially write this off? And then hey, we'll simply tell you if it's possible or if it's not. But I always want you to have that thought process when it comes to business deductions. Health insurance deduction, that is another one. As y'all know, health insurance is just expensive. That's just it, it just is what

Retirement Health Deductions And Paying Kids

SPEAKER_01 40:30

it is, right? But the good news is as a self-employed person, it is actually a hundred percent deductible for any premiums that you pay. And then anything that you pay out of pocket can still be a deduction, uh, what what is called the itemized deduction, but we want to make sure that we maximize the health insurance deduction first of all of your premiums, and then you get to write off any out-of-pocket expenses as well. Uh, can you take the I'm saying I'm assuming can you take the health insurance deduction if you're an S-Corp? Yes, absolutely you can. That's a great question. So you can take the health insurance deduction as a S-corp. The only caveat to that is it needs to be within, it needs to be with under under the practice or under the business name. So whatever your health insurance plan is, it needs to be under the business name, and then you can take it as a deduction. So if you have the plan set up for the business, even in an S-corp, then yes, you can absolutely write it off. If it's not, there's some things that we could potentially do to have it deducted. But in general, you want to make sure that if you're in an S-corp, because you know, hey, that's uh I tell people move into an S-corp. Think think of the latter this way. So when you first start a business and you are a 1099 contractor, right? You know, you you just started, that's what's considered a sole prop in the IRS's eyes. That's the equivalent of getting your high school diploma. Then you move up, let's say you get your LLC or your PLLC in Texas. Well, then now that becomes your bachelor's. Well, then now when you make that S-Corp election, that's like getting your master's. So it's a kind of a step up, a level up, but very much so worthwhile in the right situation. And so definitely some hoops to jump through with S-Corp elections. But, you know, as we were talking about in the right situation, if you are making a profit in your business, S Corp usually saves you five figures of taxes alone, usually. But yes, even in a uh S-Corp, you can write off the health insurance deduction, so that's not an issue at all. Um, next thing is income shifting. So what this means is paying your kids. How many of you guys have kids who are under 18? Did you know that you can pay your kids a little over $16,000 each? And that can be a through your business, if they do legitimate work in your business, you can pay them $16,000 each, and that is a legitimate business deduction for you, you pay them and they do not have to file a tax return. That is one of the most underutilized tax strategies that is out there. But if you have kids who are 17 and under and you have them do legitimate work in your business, you should be paying your kids because that reduces your taxable income, and they don't even have to file a tax return for it, as long as it's under the standard deduction, which is like 16, 5 this year, something like that. Oh, we have somebody who employs them. Perfect. Yes, as as well you should, because guess what? You're going to be paying for them anyways, so you might as well make it a tax write-off, right? Once again, as we talked about, there are just certain things that you can do as a business owner that is beneficial for you. And this is one of the things. Uh, what if my son is over 21? You can still pay them. The rules change slightly over 21. So the biggest benefits come from 17 and under. If they are Over 21, then typically you have to do a 1099 for them, just depending on the situation. And if they're over that, if they're over 21, I'm assuming they'll probably have another job anyway. So they'll probably follow the return regardless. But if they are doing work in your business, it's still a deduction for your business, but it's not the double whammy of, hey, I'm paying them from the business and get the deduction. And they don't have to pay any income tax on what they receive. So you just kind of lose that double whammy. But if they're over 21, you still get to pay them and write that off on your business. But if they're 21 and grown, then I guess their tax bill is their problem anyways. So it's not going to come back to you. But yes, if they're over, if they're over 18, 18 and over, you could still pay pay your kids and it becomes a tax deduction. I employ mine and pay them to their own bank accounts. Yep. That is the that is the one caveat that you have to do is pay them to their pay from your business account to their bank account. So you do have to set up a bank account for them. You do have to track the hours that they're working, making sure they're doing legitimate work for a reasonable wage. You know, it doesn't have to be super low, but you know, you can't say, hey, I'm gonna pay my, you know, 12-year-old, you know, $75 an hour to take out the trash, you know, a couple hours a week. Like, can't be that, it has to be reasonable. But I tell you that's one of the most underutilized tax deductions by people with kids. Jackie, what about a four-year-old? Actually, crazy enough, you you can write off it. There's no actual age limit. It is really just about what they can do legitimately in the business and how you can have them work. So, perfect example. What we've seen some clients do. We just talked what a client they just did a photo shoot. They have an eight-month-old, and actually they're a couple, man and wife, and they run a practice together, and they have an eight-month-old, and they have their eight-month-old on their practice page. Guess what? You can actually pay the eight-month-old a fee for being in the pictures for your business. Like, crazy enough. Like, so it's things like that that you can actually do.

SPEAKER_00 46:17

I love this. How can folks contact

Resources Contact Info And Closing

SPEAKER_00 46:20

you? No, there's so much more here. I mean, I've heard you speak before, and I always learned something. In fact, I've paid my kids after one of your presentations. So this is I love how you teach us what to do so that we take more money and keep more money.

SPEAKER_01 46:36

Absolutely. No, I I love that. One last thing, remember this 2030-50 rule, 20 taxes, 30 overhead, 50 for yourself. Some nuance in that. But and once again, you guys are going to get all these slides too. I'm gonna put this in the resources. And right there, best way to reach me, the webpage for you guys to get all of the all the free resources I have for you guys. If you want to book a call with us, it's right on that page. We love to talk, walk you through S Corp, walk you through tax planning, anything you might need, we are here for you.

SPEAKER_00 47:12

Highly, highly recommend. So here's how we put the resources in your possession. We don't do email. You already have the certificate in your profile. We just need you to fill out the attendance link. As soon as I click these links, or Alan, you can send me PDFs of these PowerPoints that might be and as soon as he sends them to me, I put them into your Kate Walker training profile. So do not look for an email from me. Look in your profile in the next couple of days, and I will make sure every single resource that Alan has provided goes into your profile. So, Alan, thank you again. This is perfect timing. We need you, we need this advice. And tell us again one more time, how can folks contact you if they have questions or they want to.

SPEAKER_01 47:59

Yeah, sure. The the easiest way, once again, click the link, or you could go to the therapistcpa.com, go to our webpage. You can you can find us there and all the all the things that we're doing. And we still have a few openings for for tax season. In case for those of you who say it extension and you want to save a little bit of money, we can still help. But once again, it's never too late to start planning for 2026 to make sure that's your lowest tax bill ever. Thank you, Kate. Thank you so much. Thank you. Glad to see you.

SPEAKER_00 48:27

Thank you so much, Alan. And thank you guys. And I will see you guys next month at our next webinar. And uh yeah, have a great evening. See y'all soon. If this episode got you thinking seriously about maybe adding private practice, supervision, consulting, a new certification, something to your practice that could enhance your life and the bottom line, your next step is simple. Grab the bonus at KateWalkertraining.com slash bonus. It's going to walk you through exactly what you need in place before you add that extra thing this month. And if you're ready to make it official with starting supervision, it's easy to do. Just go to KateWalkerTraining.com slash supervisor training. If you love today's episode, be sure to leave a five-star review. It helps other badass therapists find the show and build practices that thrive. Big thanks to Ridgley Walker for our original fun facts and podcast intro, and to Carl Diamella for editing this episode and making us sound amazing. See you next week.