Bookkeeping for Mental Health Therapists

Most solo therapy practices use cash-basis accounting for tax purposes because it is simpler and defers income until actual receipt — useful when insurance claims take weeks to process. However, accrual-basis management reporting gives a more accurate picture of practice performance because it matches revenue to the session month. Luisa can maintain your books on an accrual basis for management visibility while preparing your taxes on a cash basis, providing the best of both worlds.

When a claim is denied and you convert it to a client self-pay balance, the revenue recognition simply shifts from the insurance payer to the client. Under cash-basis accounting, you recognize the income when the client pays — whether by card, check, or payment plan installment. Luisa tracks the status change in your accounts receivable so the conversion is recorded cleanly and the denied claim doesn't create a ghost receivable that distorts your books.

If the associate is classified as an independent contractor and you pay them more than $600 in the calendar year, you must issue a 1099-NEC by January 31. If they are an employee, you issue a W-2 instead. The form you issue must match the actual classification — you cannot resolve a misclassification error by choosing the 'easier' form. If you are uncertain which applies to your associates, that is exactly the conversation to have with Luisa before the end of the year.

Generally, no — personal therapy is a personal health expense, not a business expense, even if it makes you a better therapist. However, if you participate in clinical supervision for which you pay a fee and that supervision is required for your license maintenance or advancement, those supervision costs are deductible as professional education expenses. The distinction is whether the expense maintains your professional status (deductible) or is primarily personal in benefit (not deductible).

Self-employed therapists have several powerful retirement savings vehicles. A SEP-IRA allows contributions of up to 25% of net self-employment income — up to $69,000 for 2024 — with very low administrative overhead. A Solo 401(k) allows both employee and employer contributions, potentially exceeding SEP-IRA limits at lower income levels and also permitting Roth contributions. As an Enrolled Agent, Luisa calculates your maximum allowable contribution for each option based on your actual net self-employment income so you can make an informed decision before the tax filing deadline.