Tax Fundamentals for Birth and Wellness Professionals

Please note that Fertile Optimism does not provide financial or tax advice; this article is for general informational purposes only, and we strongly encourage all birth and wellness professionals, readers and others to consult a qualified financial advisor and tax advisor to determine the best course of action for their specific business or personal circumstances. Now, let’s dive into Birth Professional Tax Fundamentals and explore key strategies for managing your tax obligations effectively. 

As a birth or wellness professional, the beginning of tax season can feel daunting, especially when juggling complex business and personal finances. Through knowledge and systematically organizing financial affairs, you can ease the pressure of the tax season by using a focused approach when filing your taxes. These strategies can promote sustainable growth of your birth and wellness practice throughout the year. The following financial principles should enable you to meet your tax obligations. Also, allowing for the optimization of financial strategies and improvement of the profitability and longevity of your business.

1. An Understanding of Business Structure and Tax Implications

Yes, I get it, tax season feels daunting, but a good starting point to navigating tax season begins with a clear understanding of your business’ structure. How you file your taxes weigh on whether you are operating as a sole proprietor, an LLC, an S-Corp, or another type of entity. Each structure carries distinct tax responsibilities, benefits and risk.  

So, choosing the appropriate structure for your practice can significantly affect your tax filing process. Understanding these differences can help you make informed decisions and optimize your financial worthiness.

Choosing the Right Business Structure: Sole Proprietor, LLC, or S-Corp

Fertile Optimism has taken the time to explore the distinctions between the business structures, being a sole proprietor, forming an LLC, or electing an S-Corp. Our research has shown that each structure can benefit a business in its own unique way. Consult with a trusted financial and tax advisor who can help you determine the best legal business structure for your business.

Summary of each legal business structure

• Sole Proprietorship: Of course, the sole proprietorship is the simplest way to structure your business, where you report your income and expenses directly on your personal tax return using Form 1040, Schedule C.
• LLC (Limited Liability Company): Choosing an LLC provides advantages. There’s protection from personal liability. This structure shields your personal assets from business debts. You carry over your business income and losses to your personal tax return, avoiding the complexity of corporate taxes. It provides a separation between personal and business risks without additional tax burden.
• S-Corp: S-Corporations provide more tax advantages since shareholders can include the income in their personal tax returns, avoiding double taxation. However, S-Corps requires more paperwork and additional formalities.

2. Tax FUNDAMENTAL: Keep Accurate Records and Track Expense

Keep accurate records to claim allowable deductions, reducing your taxable income. For birth and wellness professionals, the ability to track and document business-related expenses is invaluable, as it forms the basis for maximizing your deductions. Remember, the IRS allows deductions for expenses that are “ordinary and necessary” to the operation of your practice. This may include costs for the following items:

• Supplies: Expenses necessary to provide your services, such as birth balls, oils, and educational materials, may be deductible. Keep a record of these purchases and note whether they qualify as capital expenditures or regular operating expenses.
• Home Office: If you have a room solely for business use at home, you could deduct part of your rent, mortgage, utilities, phone, and internet bills. Just make sure you meet the IRS specifications for classifying it as a home office.
• Travel: For birth professionals who travel to clients’ homes or hospitals, the IRS allows deductions for business-related travel. Keep a record of your mileage and any travel-related expenses such as parking fees and tolls. Support these expenses with receipts and an accurate record of travel miles. Prenatal visits and postpartum care trips qualify as deductible business expenses.
• Marketing and Advertising: Expenses for advertising your practice, whether it is the cost of maintaining a website, advertising on social media, business cards or even printing flyers for local distribution are deductible. Keeping a record of advertising-related expenses can lead to significant savings.
• Professional Development: Birth and wellness professionals often engage in continuing education through workshops, courses, and certifications. These costs are also deductible if they are related to your business. Be sure to keep records of tuition or registration fees, as well as any materials or textbooks you purchase.
• Insurance: When it comes to insurance, it is important to know that premiums may be deductible and reduce your overall taxable income. Professional liability insurance, for example, which is often essential to protect yourself against claims related to your practice, may be fully deductible as a business expense. If you are self-employed and meet the IRS requirements, you can deduct your health insurance premiums, including those for your family. Provided though, that you meet the IRS requirements for deducting health insurance premiums as a self-employed person.

Business Protection: Insurance Policies & Deductible tax Expenses

In addition, other business-related policies such as property insurance (to protect your equipment or office space), business interruption insurance, or even special policies tailored to your field may also be deductible. Detailed records and receipts for these expenses are crucial, as they not only reduce your tax burden, but also provide a clear audit trail should the IRS request further documentation.

Overall, maintaining consistency is important for keeping accurate records. Whether you use accounting software or a manual system, keep receipts, invoices, and bank statements to back up your claims. Prepare to clearly categorize all tax expenses.

3. Pay Estimated Quarterly Taxes

The IRS operates on a pay-as-you-earn system, i.e. taxes must be paid when income is earned. If you do not make sufficient payments through withholding or quarterly estimates, the IRS can impose penalties. Overdue payments may also result in penalties, even if a refund is due.

So, if you are a self-employed birth or wellness professional, the IRS may require you to pay quarterly estimated taxes. These are usually on April 15, June 15, September 15, and January 15 of the following year.

Estimating Quarterly Taxes and Avoiding Penalties

To estimate your quarterly taxes, calculate your projected income for the year and apply the correct tax rate. Many professionals use tax preparation software or hire a tax accountant to assist them with these calculations. The IRS provides a worksheet (Form 1040-ES) to help estimate these payments.

Exceptions to Paying Quarterly Taxes

For a comprehensive list of exceptions and additional details on quarterly tax payments, visit the IRS website at irs.gov.

If all this is totally mind-boggling, consult with a professional financial and tax advisor. These are the professionals that know how to help you navigate these deep waters. 

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4. Maximize Tax Deductions BIRTH PROFESSIONALS

As a self-employed birth or wellness professional, you can claim tax deductions that reduce your taxable income. The main deductions you should consider are:

• Education and Training: As mentioned in our article, the costs of relevant workshops, certifications or courses that improve your skills and services are deductible as business expenses.
• Retirement Contributions: Contributions to retirement accounts such as SEP IRA, you can deduct Simple IRA or Solo 401(k) from your taxable income. These provide tax-deferred growth of your savings.
• Self-Employment Tax: You can deduct half of your self-employment tax (including Social Security and Medicare) as a change to income.

Consult a tax advisor to ensure you are fully using available deductions.

5. BIRTH and Wellness Professionals: Prepare for Tax Audits

Although you usually file tax returns without issues, you should prepare for a potential audit. The IRS can audit your tax returns for up to three years after you file (or longer if they suspect fraud).

To protect yourself

• Keep copies of all receipts of your income and expenses for at least three years. There are those that prefer to keep receipts for up to ten years.
• Make sure your deductions are legitimate and supported by receipts or proof of payment.
• If you collaborate with contractors or employees, you may need to issue and file 1099 forms.

In the event of an audit, well-organized financial records can avoid unnecessary stress and ensure that you comply with IRS regulations.

6. Work With a Tax Professional

Tax laws are extraordinarily complex and constantly changing. Having a knowledgeable and trained tax professional on your team can help you navigate the intricacies of business deductions, tax planning and filing. These professionals can also advise you on the most tax-efficient business structure. Tax professionals can also assist you with estimated payments and help with planning.

Consider working with someone who understands the unique challenges that birth and wellness professionals face. Professional tax advisors can provide specialized services tailored specifically for small businesses and independent contractors.

Conclusion

Minimize the stress of the tax season. Work to understand the financial fundamentals. Take practical and systematic steps to keep your finances in order. This may help reduce your tax burden so you can keep more of your hard-earned money. From choosing the right business structure to monitoring expenses, to working with a tax professional, taking the time to get your finances in order will benefit you, not just during tax season, but throughout the year.

Disclaimer: This article is intended solely for informational purposes and should not be regarded as professional financial or tax advice. Tax laws are complex and subject to change, and individual circumstances vary greatly. Fertile Optimism strongly encourages readers to consult with a qualified financial and tax advisor to determine the best course of action for their specific situation… Fertile Optimism assumes no responsibility or liability for any errors, omissions, or actions taken based on the information provided herein.

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Footnotes:

1. IRS. “Self-Employed Individuals Tax Center.” Internal Revenue Service. https://www.irs.gov/businesses/small-businesses-self-employed
2. U.S. Small Business Administration. “Choose Your Business Structure.” https://www.sba.gov/business-guide/launch/choose-your-business-structure
3. IRS. “Deducting Business Expenses.” https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses
4. IRS. “Estimated Tax for Individuals.” https://www.irs.gov/individuals/estimated-taxes.
5. IRS. “Filing and Paying Your Business Taxes.” https://www.irs.gov/businesses/small-businesses-self-employed/filing-and-paying-your-business-taxes
6. IRS. “Audit Techniques Guide for Small Businesses.” https://www.irs.gov/businesses/small-businesses-self-employed/audit-techniques-guide-for-small-businesses