Tax preparation is often accompanied by slapstick jokes and anxiety.  But it doesn’t have to feel that way for you. As tax filing season approaches, we’ve compiled some easy information, steps, and tips to help make tax filing easier for you and your massage therapy practice. Although we do not endorse or promote any item mentioned in this article, here are some tips that may make for an easier process.

Resources Available to You

The American Massage Therapy Association (AMTA) offers a plethora of tax tips and articles to better your grasp on taxes. Whether you are a massage therapy business owner, contractor, or employee, knowing your rights and being fully prepared can only aid you in a smooth filing process with the IRS. Visit amtamassage.org to learn more.

Another tool available to you is TurboTax. This is one of the most common products used when filing taxes online. This system is equipped with various pages and questionnaires to get you filing faster. One major benefit of using this product is the software’s auto- fill feature. After the first time you fill it out, your information will be ready and available for you to make the next year’s filing simple and easy. Plus, if you are an AMTA member, it’s free!

 Record Keeping & Organization

In today’s digital age, almost every transaction is handled online and through email. If you’re paper oriented, make it a priority to print out each transaction at the end of each day. If you’re more electronically oriented, set up specific folders under your inbox to drag and drop each item into the appropriate folder.

Label each folder by year so as to make future referencing easier.

Another organizational strategy is to separate the personal expenses from the business expenses. “It’s important to know how to categorize your expenses and make sure you’re prepared” remarks Nancy Porambo, owner of The Therapy Option, Inc. based in Pennsylvania. “The more understanding you have with what legitimate tax deductions are for the business, the more beneficial it will be for your business.” The added benefit of intense organization is the ability to monitor and track your business. You can more accurately identify better cost efficiencies or what to further invest in. If you are the business owner or a contractor, you’ll have each year’s analytics at your fingertips to better serve your business and your clients.

A Balancing Act

How much money are you bringing in and how much are you spending? When tax season rolls around, identifying your bracket can be made less stressful with proper knowledge.

According to the IRS, if you are a cash- basis taxpayer, any income earned isn’t taxed by service date but rather the year the service/payment was provided. This is where you’ll need to make sure you’re not inadvertently omitting tax payments because you couldn’t keep track of the years. This also includes any cancelled checks or credit card statements.  On the flip side, your expenses as a business owner or contractor include rent, utilities, promotional efforts (Facebook ads), and supplies. The main point to keep in mind with expenses is intent. You can only claim these expenses in your taxes if the purchase was intended to be used in the manner of which your profession dictates. Visit IRS.gov

When to Seek Help

If you’re feeling squeamish about filing your own taxes, it may be time to call a professional accountant. “You may also have additional tax obligations, such as city and county, personal property and business license taxes, which you’ll want to be sure you’re addressing properly and tax laws and regulations often change. Or you may simply have an unusual or especially complicated situation” writes Vicki White, a feature writer for Massage Therapy Journal.

Find an accountant who has professional experience working with small businesses. Ask friends or colleagues for recommendations on accountants they hire.

Taxes in A Nutshell

Here are some basic definitions as provided by the internal revenue service.

What is an LLC?

“A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, you should check with your state if you are interested in starting a Limited Liability Company.

Owners of an LLC are called members. Most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs, those having only one owner.

A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information.” Via IRS.gov

What is an S Corp?

“S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

To qualify for S corporation status, the corporation must meet the following requirements:

•          Be a domestic corporation

•          Have only allowable shareholders –May be individuals, certain trusts, and estates and may not be partnerships, corporations or non-resident alien shareholders

•          Have no more than 100 shareholders

•          Have only one class of stock

•          Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).”

Via IRS.gov

If you meet these three criteria, you are eligible for tax deductions:

•          Expense in connection with your practice.

•          The expense is ordinary (common or accepted as an expense of running a massage therapy practice) and necessary (appropriate or helpful for developing and maintaining your practice).

•          This is based on precedent and on the reasonable belief that it is accurate.

Disclaimer: This article is intended to provide a general overview of considerations when filing taxes for massage therapists. It does not offer personalized tax, legal, or other business or professional advice. Always consult a tax professional to determine your specific situation. For additional tax information, take advantage of the resources at irs.gov.