Bookkeeping for therapists in private practice

Two kinds of records

A therapist’s day produces two kinds of records. One is clinical: notes, treatment plans, and the details that make the work possible. The other is financial: a payment came in, a bill went out. Privacy rules and plain good sense say these should live in different places, and the books should hold as little about clients as possible.

That is easier than it sounds. The tax return does not need client names. Schedule C asks how much you received, not from whom. Your books need a date, an amount, and a source: a client payment, an insurer, or a card processor. If you need to trace a payment, a client number or an initial is enough, and your practice software can link it to the person.

Keep client names out of transaction descriptions, out of notes in your bookkeeping file, and out of anything you send your accountant. Bank exports sometimes include the payer’s name. When you import them, replace the name with a source label. A rule can do this for you.

How money comes in

Private practice money arrives in three streams, and each one moves on its own calendar.

Self-pay clients pay at the session or are billed through your practice software. Card payments land in your bank a day or two later, minus a processing fee. Record the gross session fee as income and the processing fee on commissions and fees, line 10.

Insurance payments arrive weeks after the session, often in a single deposit that covers many claims. On the cash basis, record the income when the deposit reaches your bank, not when you saw the client. A December session paid in February is income in February, and in next year’s return. Your practice software tracks the claims. Your books track the money.

Copays and coinsurance are client payments. Treat them like self-pay.

If you want to see what insurers still owe in total, Righto can track receivables: enter the amount owed by each payer, and mark it paid when the deposit arrives. The reports stay on the cash basis.

Some insurers send a Form 1099-NEC or 1099-MISC. A card processor may send a 1099-K. Add up all forms and compare with your income. A difference is usually timing, a refund, or a payment that was already counted on another form. Write down the reason.

Refunds and overpayments

Insurers sometimes pay twice, or pay and then take the money back months later after an audit of claims. Clients overpay or prepay a package of sessions.

When you return money, record the refund as a reduction of income on the day it leaves your account. When an insurer takes money back by reducing a later payment, record the full later payment as income and the recoupment as a separate negative entry. That way the deposit still matches the bank, and the recoupment is visible.

A client who prepays for sessions has paid you on the day the money arrives. On the cash basis, that is income then, even if the sessions are next month.

The fixed costs of a practice

Most of a practice’s costs are predictable, which makes the books easier.

Health insurance for you is not a Schedule C expense. If you are self-employed, it may be deductible elsewhere on your return; ask your preparer.

Clinical supervision you pay for while working toward a license is usually a business expense if you already have a practice. Education that qualifies you for a new trade is different from education that maintains your skills. Publication 334 explains the difference. Most continuing education fits the second kind.

Equipment

A laptop, a webcam, a good microphone, a sound machine, office chairs. Under the de minimis safe harbor in the tangible property regulations, you can deduct any item or invoice of $2,500 or less in the year you buy it, if you make the election on your return. A $1,900 laptop is a supply. If you use it for personal things too, deduct the business share. Office furniture for a full room may come on one invoice over $2,500; that goes on depreciation, line 13.

The telehealth home office

Many therapists now see some or all clients by video from home. If you use a room, or a clearly separate part of a room, regularly and only for your practice, you may take the home office deduction on line 30. If you also have a rented office, the home space can still qualify if you see clients there or if you use it for administration and have no other fixed place for that work. Publication 587 has the tests.

“Only for business” is a strict test. A guest room with a desk for sessions and a bed for visiting family does not qualify. A former guest room with the bed removed can.

There are two methods: the simplified one, at $5 per square foot up to 300 square feet, or the regular one, which uses a share of your actual rent or mortgage interest, utilities and insurance. The home office tool compares them.

A worked example

Elena is a licensed counselor. She rents an office two days a week and sees clients by video from home three days. Her 2026 summary:

Her net profit is about $93,125. December sessions billed to insurers for $3,900 had not been paid by December 31, so they are not in this year’s income. They will be in next year’s.

Self-employment tax on that profit is about $13,160, computed as 15.3% of 92.35% of her profit. Income tax comes on top. The self-employment tax calculator gives the estimate, and half of the self-employment tax is deductible on her return.

Setting money aside

A practice with steady weekly income is well suited to a simple rule. Each Friday, move a fixed share of the week’s deposits to a separate savings account. For a profit like Elena’s, 25 to 30 percent is a reasonable starting point, but your number depends on your household. Pay quarterly estimates on the dates in the estimated tax dates tool. Publication 505 explains the safe harbors that avoid a penalty when income changes.

Yearly costs, such as malpractice insurance, license renewal and the membership, arrive in a few large bills. Put a small amount aside each month so they do not hit one month hard.

Common mistakes

• Client names in the books. Use source labels or numbers.
• Recording insurance income at the session date. On the cash basis, it is income when the money arrives.
• Netting recoupments. Record the deposit and the recoupment as separate entries.
• A home office that is also a guest room. It does not meet the test.
• Deducting your own health insurance on Schedule C. It goes elsewhere.

A weekly and monthly routine

Each week, check the deposits that arrived and label each one: client payment, insurer, or processor. Each month, import your business bank and card statements into Righto. It reads CSV, OFX and QFX files, and PDF statements, including scanned PDFs read on your Mac (importing statements). Set a rule for each insurer and for your processor, so new deposits are labeled without names (rules). Then reconcile each account to the statement balance (how to reconcile).

Each quarter, check profit to date and pay the estimate.

What to hand your preparer

At year-end, Righto builds a package with profit and loss by Schedule C line and the transaction detail (year-end). It contains no client information if your books contain none. Add:

• Every 1099-NEC, 1099-MISC and 1099-K, with notes on any difference.
• Home office measurements and your choice of method.
• Equipment over $2,500, with dates and prices.
• Your health insurance premiums, for the separate deduction.
• Estimated tax payments with dates.

The Schedule C instructions and the Schedule C categories tool help with anything that does not fit a line above. If you want help with the routine work, you can connect your own AI agent to Righto at an access level you choose (agents). Every change it makes is recorded and undoable.

General information, not advice for your situation. Ask a tax professional about your own return.