Quarterly Tax Deadlines: What Therapists Need to Know

As a therapist running your own private practice, one of the key responsibilities that comes with being self-employed is managing your tax obligations. Unlike traditional employees, you don’t have taxes automatically withheld from your income, and it’s up to you to make sure that you pay your taxes on time. For most self-employed therapists, this means making quarterly estimated tax payments to the IRS and your state tax authority. To help you stay organized and avoid costly penalties, this comprehensive guide will walk you through the key quarterly tax deadlines, tips for staying on top of your tax payments, and best practices for keeping your finances in order.

What Are Quarterly Estimated Taxes?

Quarterly estimated taxes are payments that self-employed individuals must make throughout the year to cover their federal income tax, self-employment tax, and any applicable state or local taxes. These taxes are referred to as “estimated” because they are based on your expected income for the year. As a therapist in private practice, you are responsible for calculating and paying these taxes on your own, as there is no employer withholding them from your paycheck.

Why Are Quarterly Payments Necessary?

The IRS requires quarterly estimated tax payments to ensure that taxes are paid as income is earned. This prevents taxpayers from owing a large lump sum at the end of the year. Failure to pay enough in estimated taxes throughout the year can result in penalties and interest charges. Making estimated tax payments on time helps you stay compliant and avoid these additional costs.

Helpful CPA illustration of quarterly tax management for therapists

Key Quarterly Tax Deadlines

There are four quarterly tax deadlines throughout the year. Missing these deadlines can result in penalties and interest, so it’s important to mark your calendar and make sure your payments are made on time.

First Quarter: April 15 – Covers income earned from January 1 to March 31
Second Quarter: June 15 – Covers income earned from April 1 to May 31
Third Quarter: September 15 – Covers income earned from June 1 to August 31
Fourth Quarter: January 15 (following year) – Covers income earned from September 1 to December 31

If the due date falls on a weekend or a federal holiday, the deadline is typically moved to the next business day. It’s crucial to plan ahead and ensure that your payments are made on time to avoid any penalties.

Helpful CPA illustration of what therapists need to know about navigating quarterly tax deadlines

Calculating Your Quarterly Estimated Taxes

Calculating your quarterly estimated taxes requires you to estimate your total income, deductions, and credits for the year. The IRS provides Form 1040-ES to help you calculate your estimated tax payments. Here are the basic steps to calculate your quarterly estimated taxes:

Step 1: Estimate Your Annual Income

Start by estimating your total income for the year. This includes income from therapy sessions, speaking engagements, workshops, and any other sources. Be as accurate as possible, but remember that it’s okay if your estimate isn’t perfect. You can adjust your payments as the year progresses.

Step 2: Estimate Your Deductions

Subtract any business-related deductions from your estimated income. Common deductions for therapists include office rent, utilities, professional liability insurance, continuing education, supplies, and marketing expenses. You can also deduct contributions to retirement plans, such as a SEP IRA or Solo 401(k).

Step 3: Calculate Your Tax Liability

Once you have your estimated taxable income, use the tax brackets for the current year to determine your federal income tax liability. Don’t forget to include self-employment tax, which is 15.3% of your net earnings.

Step 4: Divide by Four

Divide your total estimated tax liability by four to determine your quarterly payment amount. This will help you spread your tax payments evenly throughout the year.

Tip: If your income varies significantly throughout the year, you can adjust your payments accordingly. The IRS allows you to pay based on what you actually earn each quarter, which may help if your income fluctuates.

Helpful CPA for therapists illustration of quarterly estimated tax calculation

How to Make Quarterly Tax Payments

Making quarterly estimated tax payments is relatively straightforward, and there are several methods available:

Online Payment

The IRS provides an online payment portal called IRS Direct Pay, which allows you to make payments directly from your bank account without any fees. You can also use the Electronic Federal Tax Payment System (EFTPS) to schedule payments in advance.

Credit/Debit Card

You can also make payments using a credit or debit card, although this method may come with processing fees. Payments can be made through the IRS website or approved third-party payment processors.

Check or Money Order

If you prefer to mail your payment, you can do so using a check or money order made payable to the “United States Treasury.” Be sure to include Form 1040-ES payment voucher with your check and mail it to the address listed on the form.

Tips for Staying Organized

Managing quarterly estimated tax payments can be challenging, especially when you’re balancing a busy therapy practice. Here are some tips to help you stay organized and ensure your payments are made on time:

Set Reminders for Payment Deadlines

Use your phone, calendar app, or accounting software to set reminders for each of the quarterly payment deadlines. Having multiple reminders leading up to each deadline can help ensure that you don’t forget.

Open a Separate Tax Savings Account

Open a separate savings account specifically for your tax payments. Each time you receive payment from a client, set aside a percentage (typically 20-35%) into your tax savings account. This will help ensure you have enough funds to cover your estimated tax payments when they’re due.

Automate Your Savings

Set up automatic transfers to your tax savings account each time you receive a payment. This will help you save consistently and reduce the temptation to spend the money elsewhere.

Use Accounting Software

Invest in accounting software such as QuickBooks, Xero, or Wave to track your income, expenses, and tax liabilities. These tools can help you generate reports that make estimating your taxes easier.

Work with a Tax Professional

A tax professional can help you estimate your quarterly tax payments, determine eligible deductions, and ensure that you are meeting all of your tax obligations. This can reduce stress and help you avoid costly mistakes.

Helpful CPA illustration of what therapists need to know about managing quarterly tax payments

Common Mistakes Therapists Make with Quarterly Taxes

Paying estimated taxes can be complicated, and there are some common mistakes that therapists make that can lead to penalties and interest charges. Here are some of the most common mistakes and how to avoid them:

Underestimating Income

The Mistake: Underestimating your income for the year can lead to underpayment of estimated taxes, resulting in penalties and interest.
How to Avoid It: Be as accurate as possible when estimating your income, and adjust your quarterly payments if your income increases throughout the year. It’s better to overestimate slightly than to underestimate.

Missing Deadlines

The Mistake: Missing one or more of the quarterly payment deadlines can lead to penalties and interest charges.
How to Avoid It: Set multiple reminders for each deadline and make your payments early to avoid missing a deadline. Consider automating your payments through EFTPS.

Not Keeping Accurate Records

The Mistake: Failing to keep accurate records of your income, expenses, and tax payments can make it difficult to estimate your taxes accurately and may lead to mistakes.
How to Avoid It: Use accounting software to track all income and expenses, and keep detailed records of your payments. This will make it easier to file your annual tax return and avoid discrepancies.

Not Paying Enough in Estimated Taxes

The Mistake: If you don’t pay enough in estimated taxes, you may be subject to underpayment penalties.
How to Avoid It: To avoid underpayment penalties, make sure you pay at least 90% of your current year’s tax liability or 100% of your prior year’s tax liability (110% if your adjusted gross income was over $150,000). A tax professional can help you determine the correct amount to pay.

Helpful CPA for therapists illustration of the common mistakes therapists make with quarterly taxes

State Quarterly Tax Payments

In addition to federal estimated tax payments, you may also be required to make quarterly estimated tax payments to your state tax authority. Each state has its own rules and requirements for estimated taxes, so it’s important to research your state’s requirements and ensure that you’re making the necessary payments.

Research State-Specific Requirements

Visit your state’s Department of Revenue website to find information on estimated tax payment requirements, deadlines, and payment options. Make sure to mark these deadlines on your calendar along with the federal deadlines.

Consult with a Tax Professional

State tax rules can be complex, and they vary significantly from state to state. A tax professional can help you understand your state tax obligations and ensure that you’re making the correct payments.

Penalties for Underpayment or Late Payment

Failing to pay enough in estimated taxes or missing payment deadlines can result in penalties and interest charges from the IRS. Here’s what you need to know about potential penalties:

Underpayment Penalty

The IRS imposes a penalty if you don’t pay enough in estimated taxes throughout the year. The penalty is calculated based on the amount of underpayment and the length of time the payment was late.

Late Payment Penalty

If you miss a quarterly tax payment deadline, the IRS may charge a late payment penalty. This penalty is usually calculated as a percentage of the amount due, and interest may also be charged on the unpaid amount.

How to Avoid Penalties

Pay on Time: Make sure to pay your estimated taxes by the quarterly deadlines to avoid late payment penalties.
Adjust Payments as Needed: If your income changes throughout the year, adjust your quarterly payments to ensure that you’re paying enough. Use Form 1040-ES to calculate any adjustments.
Safe Harbor Rule: To avoid underpayment penalties, make sure to pay at least 90% of your current year’s tax liability or 100% of your prior year’s tax liability (110% if your income was over $150,000).

Helpful CPA for therapists illustration of how to manage estimated taxes to avoid penalties

Year-End Tax Planning

Quarterly estimated tax payments are just one part of managing your overall tax liability. As the end of the year approaches, it’s important to engage in year-end tax planning to ensure that you’re on track and to make any necessary adjustments.

Review Your Estimated Payments

Compare Payments to Income: Review your estimated payments and compare them to your actual income for the year. If you’ve earned more than expected, you may need to make an additional payment to avoid underpayment penalties.

Maximize Deductions

Business Expenses: Review your business expenses and make any necessary purchases before the end of the year to maximize your deductions. Common expenses for therapists include office supplies, professional development, and marketing.
Retirement Contributions: Consider making additional contributions to your retirement accounts, such as a SEP IRA or Solo 401(k). Contributions are tax-deductible and can help reduce your taxable income.

Consult a Tax Professional

A tax professional can help you review your estimated payments, calculate any additional payments needed, and identify opportunities to reduce your tax liability before the end of the year.

Helpful CPA for therapists illustration of how to manage year-end tax planning

Best Practices for Managing Quarterly Taxes

Here are some best practices for staying organized and managing your quarterly estimated taxes effectively:

Stay Consistent

Set aside a consistent percentage of each payment you receive to cover your taxes. This will help you ensure that you always have enough saved to make your quarterly payments.

Review Your Income Regularly

Regularly review your income and expenses to ensure that you’re on track with your estimated payments. If your income increases, adjust your estimated payments accordingly.

Seek Professional Help

Don’t hesitate to work with a tax professional or accountant. They can provide valuable guidance on estimated payments, deductions, and tax planning, helping you avoid mistakes and reduce your overall tax burden.

Helpful CPA for therapists illustration of best practices for managing quarterly taxes

Final Thoughts

Paying quarterly estimated taxes is a crucial part of running a successful private practice as a therapist. By understanding the key deadlines, calculating your payments accurately, and staying organized, you can avoid penalties and ensure that you meet your tax obligations. Remember, the key to managing quarterly taxes is consistency, setting aside money regularly, making payments on time, and staying informed about your tax obligations. If you’re feeling overwhelmed or unsure about your tax responsibilities, consider working with a tax professional who can guide you through the process and help you focus on what you do best: providing quality care to your clients.

If you need assistance navigating quarterly estimated taxes or managing the financial aspects of your private practice, Helpful CPA is here to help. We specialize in providing accounting and tax services tailored for therapists, helping you stay organized and compliant so you can focus on growing your practice. Schedule a free consultation.