How much should I set aside from each payment so taxes never surprise me?
The figure most people land on is 25 to 30 percent, and that is a reasonable place to start. I want to be honest that it is general guidance rather than your number. What you actually owe depends on your entity type, your filing status, whether your state has income tax, whether a spouse’s paycheck is already withholding, and what your practice can deduct. Your tax preparer can give you a percentage built on your real situation, and that is the person to ask. Rates and thresholds change, so it is worth confirming rather than carrying an old number forward.
The part that trips people up is what the percentage applies to. It applies to profit, which is what is left after your practice expenses come out. Say $10,000 in client payments came in during a month and $3,000 went out for rent, your EHR subscription, liability insurance, and the rest. Profit is $7,000, and 25 to 30 percent of that lands somewhere around $1,750 to $2,100. Measured against the deposits themselves, that works out to roughly 18 to 21 percent. If you want a simple per payment rule, take your usual profit margin, multiply it by the percentage your preparer gives you, and move that share of every deposit.
Then make it a habit you do not have to think about. Open a separate savings account that exists only for taxes and move the money the same day payments land, or on one set day each week. Practices that scramble at the end of the quarter to find the money are the ones that get surprised. This is one of the things I keep an eye on for clients as part of monthly bookkeeping, because it is easy to intend to transfer and then have a full week of sessions get in the way.
Revisit the number when something changes. Electing S corp status and running owner payroll shifts it, since some tax is already being withheld. A jump in caseload, adding an associate, or a large equipment purchase can all move it too.
Any percentage is only as good as the profit figure underneath it. That is where clean, reconciled books earn their keep, and it is a large part of what bookkeeping for therapists is really for. When your books are current, you know what the practice earned, your reserve is calculated from something real, and your preparer has what they need at filing time.
If you would like help getting to that point, book a consultation with me and we can talk through where your books stand.
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More Questions
Where do my payment processing fees actually go in my books?
Processing fees belong in their own expense account, with your session revenue recorded at the full amount clients paid. If you only record the smaller net deposit that lands in your bank, both your revenue and your fees disappear from view.
Read answerWhy does it matter that my bookkeeper knows mental health?
It saves you from explaining your own practice before you can ask a question, and it keeps your books categorized in the language of a practice rather than a generic business. After more than 15 years as a nurse in mental health, the learning curve happened long before my first bookkeeping client.
Read answerDo I need an accountant, a bookkeeper, or both?
Most private practices end up with both. A bookkeeper keeps your records accurate and current all year, and a tax professional uses those records to prepare returns and advise on tax strategy. The two roles work best together.
Read answerHow much does bookkeeping cost for a private practice?
Full-service monthly bookkeeping for a private practice starts at $165 a month. Add-ons like payroll processing, bill payment, invoicing, and 1099s each have their own starting price, and catch-up or clean-up work gets quoted once I see what you have.
Read answerI've been running my practice through my personal checking account. How do I untangle it?
This is the most common thing practice owners tell me, and it is completely fixable. The fix has two parts, opening dedicated business accounts for everything going forward, and sorting the historical mix so the practice's real activity gets recorded properly.
Read answerCan you run payroll for my group practice?
Yes, as long as your payroll system is already up and running. Aretha processes payroll every pay period and makes sure it posts correctly in your books. She does not handle initial payroll system setup, so a brand new practice would establish that first with its provider.
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