Would Your Practice Survive An Employment Tax Audit? (1099 vs. W-2 part 2)

Does the state tax commission really take the time to audit small private practices? I didn't think so, until my practice was selected for an audit.

A few years ago my clinic was selected for an employment tax audit. Lucky me, right? When the auditor walked into my office suite and saw many offices with different names on the doors, he looked at me pleadingly and said, "Please, please don't tell me that these therapists are all classified as 1099 contractors."

I replied, "I won't. We're all W-2's."

There was a look of relief on his face.He then proceeded to tell me that health and mental health private practitioners are notorious for incorrectly classifying 1099 employees. In his experience many groups are set up as contract workers when they are acting like employees (I'll go over into detail about the the IRS criteria for how to classify  an employee as a 1099 vs. W2 employees in a forthcoming post).

The auditor requested access to all of my financial documents including bank accounts, accounting,  payroll information and tax documents. He asked us questions about any large checks written directly to employees to make sure we were paying our employment taxes. After a brief review of my payroll and tax documents the auditor thanked me for making his job easier and left with a smile. I breathed a huge sigh of relief.

Had I hired the therapists working with me as 1099 I may have been penalized with a hefty fine and required to pay back employment taxes on all of the therapists' income. I was not in a position to shell out thousands and thousands of dollars. Had I been incorrectly classifying employees it may have put my practice in jeopardy.

Do you know the IRS criteria for classifying 1099 contract workers vs. W-2 employees? It isn't based on whether or not you want to pay your therapist's taxes or want to have them pay self-employment taxes. It isn't based on whether they are full-time or part-time workers. It isn't based on whether or not you provide benefits.

There are many misconceptions about classifying employees in private practice. I'll address theses criteria for how to distinguish between hiring 1099 vs. W-2 therapists in upcoming posts.

Watch for the next Therapist Blog Challenge coming next week, too!

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A Day In The Life Of A Private Practice Therapist

After reading my recent posts on multiple income streams for therapists, Psych Central Associate Editor and blogger, Margarita Tartakovsky asked me how I, and other therapists, juggle so many different aspects of private practice. I've been thinking about her question and thought it might be fun to start a series that peeks into "a day in the life" of therapists in private practice. I thought I'd start with me, and start with--today. Just to give you a little background...I'm a wife and a mother of 4 children ages 5 to 21. I've been in clinical practice for 16 years and I serve as director of  Wasatch Family Therapy, a private outpatient clinic that I founded in 2002. Recently, because my clinic has grown significantly, I've stopped taking new clients in order to spend more time leading, training, and pursuing other passions, like writing, media contributing, etc.

You'll notice that my "day in the life" doesn't include seeing any clients. I am currently on a month-long sabbatical from clinical work, and from as much administrative work as possible, during the month of November to dedicate time and energy to finishing up my first book. After being approached by a publisher a few months ago I decided that it was an opportunity I didn't want to pass up, but it would require cutting back on a lot of other responsibilities in order to make the deadline. I will resume seeing clients, running staff meetings, and training therapists the first week in December.

A Day In The Life

November 15, 2011

7:30--9:00AM

Woke up and get kiddos off to school, morning routine...

9:00-9:30AM

Worked on some rough song lyrics and musical ideas at the piano.

Ate breakfast. Contemplated exercise but decided to dig into book writing.

9:30AM-12:30PM

Worked from home on writing my first book on women's emotional self-care due to publisher by end of the month. Yikes. Totally overwhelmed by the thought. Reviewed my survey data to integrate into book.

Reviewed bank accounts, bills, etc. online.

Consulted for a few minutes with an old friend via Facebook who is in a family crisis.

Talked with my clinic office manager regarding tomorrow's staff meeting agenda items and other miscellaneous office stuff.

12:30-1:00PM

Talked with my TV producer and brainstormed about next week's segment "Should you keep your kids believing in Santa?" Read over blog responses to a recent parenting question about how moms handle the question, "Is Santa real?". Researched the topic online and sent in rough outline for tomorrow's production meeting.

1:00-2:00PM

Picked up daughter from preschool and got a birthday treat on the way home.

Responded to a reported request for interview.

Ate lunch.

2PM-3:30PM

Worked from home answered 30 business emails.

Phone consult with my Dir. of Child & Adolescent Services to discuss some difficult cases and recent referrals. She gave me updates on the status of our new Provo, UT location that opened last month.

Scheduled videographer to come to tomorrow's staff meeting to shoot footage of new therapists for our practice website.

Scheduled and posted social media updates on Twitter and Facebook(s).

Updated websites JulieHanks.com, WasatchFamilyTherapy.com, and added a few elements to a new site for emotionally focused couples therapists in the greater SLC area that I'm working on while my daughter colored and did art projects at the table.

3:30-4:00PM

Home assistant arrived and I give her the day's assignments - laundry, dishes, organized pantry. (I have a high school girl come 2-3 afternoons a week as a "home assistant" to run errands, fold laundry, organize, etc. Best thing I've ever done for my own self-care.)

More research and book writing.

Added more 2012 calendar items - trips, book tour, holidays.

Researched Christmas gifts for my staff online.

Downloaded a new Christmas CD Mindy Gledhill Winter Moon.

4:00-5:00PM

Napped. YES!

5:00-5:30PM

Helped 9 year old with spelling and vocabulary homework.

6:00-7:00PM

Pick up teenage daughter and went out to dinner as a family for 5 year old's birthday.

7:00-8:00PM

Son went to scouts, husband went to church meeting and I helped daughter open and put on ballerina costume from grandma and dance around the family room.

Social media updates.

Uploaded photos from birthday party.

8:00-9:00PM

Help get kids ready for bed, read, snuggle.

9:00-11:00PM

Wrote this Psych Central blog post.

Installed Photoshop updates to crop logos of recent media quotes for websites.

Did website and social media updates.

11:00-12:00PM

Check in with hubby, talk, watch TV, bed.

OK, it's your turn! I'd love to hear from other private practitioners, or students planning on going into private practice. Track your activities for a day and Email me your "day in the life of private practice" here. I just might feature you and your practice in his blog series!