How should a chiropractic or physical therapy clinic prepare books for taxes?
A clinic’s books need to tell a clear story before they reach the tax preparer. Start with deposits. Insurance EFTs, patient copays, credit card batches, and cash come in through multiple channels, and every dollar hitting the bank should match what the practice management system shows was collected. If deposits don’t reconcile, revenue is either overstated or understated, and that error flows into every line of the return.
Insurance and patient accounts receivable need cleanup before year end. AR balances should reflect what’s actually collectible. Contractual adjustments, insurance write-offs, and bad debt write-offs need to be posted so AR isn’t carrying money that will never come in. Pull an aged AR report and work through stale balances. Carrying inflated receivables makes the practice look healthier than it is and creates problems if the books are ever reviewed.
Payroll should tie to the W-2s and quarterly 941s. Total wages on the books need to match what was reported to the IRS. Employer payroll taxes, retirement contributions, and health benefits should sit in their proper categories. If the owner is on payroll, that compensation has to be separated from staff wages so the return reflects officer compensation correctly.
Equipment purchases get treated differently than supplies. A new treatment table, ultrasound unit, decompression machine, or laser is a fixed asset that gets depreciated, not an expense that hits the current year in full. These should be coded to the fixed asset account with the invoice attached so the tax preparer can evaluate Section 179 or bonus depreciation. Supplies like kinesio tape, electrodes, gloves, hot packs, and exam table paper stay in operating expenses. Mixing the two distorts both the balance sheet and the deduction.
Rent should be verified for the full year, with any prepaid rent or security deposits sitting in the right accounts rather than being expensed. Merchant fees from your card processor deserve their own line. If a patient pays $150 and the processor takes $4.50, the books should show $150 in revenue and $4.50 in merchant fees. Netting fees against revenue hides true collections and makes year-over-year comparisons unreliable. We see this often when reviewing books for medical and dental practices coming in for tax prep.
Contractor payments to massage therapists, locum providers, or any 1099 staff need to be tracked separately from W-2 wages. Anyone paid $600 or more during the year needs a 1099-NEC, and that requires a W-9 on file. Don’t wait until late January to start chasing missing W-9s from people who worked one weekend in March.
Owner distributions should be coded to equity, not expense. Money the owner pulls out of the business isn’t a deduction. Coding distributions as expense overstates losses and creates inaccurate financials that complicate the return and any future financing conversations.
Once these areas are clean, the tax preparer can focus on tax positions rather than rebuilding the books. That’s the goal of year-end prep, and it’s a big part of what our bookkeeping, tax and consulting services are built around for healthcare clinics across the Carolinas.
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