Bookkeeping basics for a private practice

This lesson is for a clinician who has started seeing clients and has not set up books yet, or who has a folder of receipts and a vague dread about April. It covers the separate bank account, cash versus accrual, what to record each month, Schedule C and self-employment tax without the jargon, two Oregon registrations most solo practices never need, a monthly close routine, record retention, and what to hand a CPA at year end. The video above is the IRS's own tour of its small business and self-employed tax center.

Open a separate business account first

IRS Publication 583, Starting a Business and Keeping Records (revised December 2024) puts this near the top: "One of the first things you should do when you start a business is open a business checking account. You should keep your business account separate from your personal checking account." A few lines later: "Use the business account for business purposes only." When every session fee lands in one account and every practice expense leaves from it, the bank statement is most of your ledger, and the monthly close becomes a matching exercise instead of rebuilding the year from a shoebox of receipts.

If you formed an LLC, the account belongs in the LLC's name; opening it is covered in step 5 of the LLC series. A sole proprietor can open one too. The point is separation, not the entity.

Cash or accrual: pick one and keep it

Pub. 583 says you choose an accounting method when you file your first return, and that there are two basic ones. Under the cash method you report income in the year you receive it and generally deduct expenses in the year you pay them. Under an accrual method you report income in the year you earn it, even if payment arrives later, and deduct expenses when you incur them.

I use cash. For a therapy practice it matches how money moves: a copay is income the day it clears, an insurance payment the day it posts. Accrual means booking each session the day you deliver it and carrying the receivable until the payer settles. Whichever you pick, Pub. 583 expects you to use it consistently for books and return alike.

What to track every month

Pub. 583 lists the documents that back up a set of books: deposit slips, receipts and invoices for income; the same plus canceled checks and account statements for expenses; the purchase paperwork for anything that lasts. For a solo caseload that boils down to four running records.

• Income by source. Client payments and each payer's remittances, logged the week they land, with payers kept separate so their 1099s reconcile at year end.
• Expenses by category. Rent, software, listings, supervision, continuing education, liability insurance, board fees, phone and internet, card fees, a biller if you use one. Tag each the month it happens; the second document attached to this lesson maps these onto Schedule C lines.
• Mileage. The Schedule C instructions allow actual car costs or a standard rate per business mile (70 cents for 2025), and Part IV of the form asks whether your evidence is written. A dated log with destination and miles is that evidence.
• Home office, if you claim one. Line 30 of Schedule C covers it, through Form 8829 or a simplified square-footage method; whether you qualify is a question for your CPA.

Schedule C and self-employment tax in plain terms

A sole proprietor or single-member LLC owner reports the practice on Schedule C (Form 1040), Profit or Loss From Business, one per business. The numbers below come from the 2025 edition of IRS Publication 334, the Tax Guide for Small Business. Part I of Schedule C is gross receipts. Part II is expenses on numbered lines (advertising on line 8, insurance on 15, rent on 20b). Line 31 is net profit, and it goes two places: onto your Form 1040 as income, and onto Schedule SE.

Schedule SE figures self-employment tax. An employee pays half of Social Security and Medicare and the employer pays the other half; self-employed, you pay both: 15.3% of net earnings, made of 12.4% for Social Security and 2.9% for Medicare, per Pub. 334. For 2025, only the first $176,100 of combined wages and net earnings is subject to the Social Security part; the Medicare part has no cap. Half of the SE tax is then deductible as an adjustment to income on Schedule 1. All of this sits on top of ordinary federal and Oregon income tax on the same profit.

The IRS also expects payment through the year. For income with no withholding the mechanism is estimated tax, paid quarterly with Form 1040-ES. How much to set aside depends on your household's other income, filing status and deductions, so I will not hand you a percentage. Ask a CPA for a number in your first quarter, then move that share of every deposit into a savings account you do not touch.

Two Oregon registrations you probably do not need

Corporate Activity Tax

The Department of Revenue's own Corporate Activity Tax page draws the lines: a business with $750,000 or less of Oregon commercial activity is excluded from all CAT requirements, registration is required at $750,000, and tax is owed only on taxable commercial activity above $1 million, computed as $250 plus 0.57% of the excess. A solo therapy practice does not get near either line.

Payroll registration

Oregon's Business Identification Number applies, in the words of the DOR's withholding and payroll tax page, to "all employers with paid employees working in Oregon." You register before issuing any paycheck, and not before; the page adds that there is no charge for a BIN. Paying a 1099 biller or a consulting supervisor does not make you an employer. The one trap: corporations without employees must still register to report compensation paid to corporate officers, so an S corporation paying you a salary does register. That trade-off is part of the entity comparison lesson; hiring has its own lesson on payroll taxes in Oregon.

Picking a tool

Any of the common bookkeeping apps will do the job for one clinician. The four I see most are QuickBooks Online, Xero, FreshBooks and Wave. Plans change often enough that I will not quote prices; those links go to each vendor's own pricing page. What matters is a bank feed, category tags, and a profit and loss report a CPA can read.

The monthly close, in about thirty minutes

1. Let the bank feed pull the month's transactions into your tool.
2. Tag every transaction to a category. Anything you cannot identify, look up now, not in April.
3. Reconcile. Pub. 583 says that when your bank statement arrives, make sure the statement, your checkbook and your books agree. In an app, that means the closing balance matches the statement.
4. Compare the month's income against your EHR's payment report.
5. Move your tax share into savings, and pay the quarterly estimate if one is due.

The first document attached to this lesson is this routine as a checklist, with the year-end hand-off list under it.

What to keep, and for how long

Pub. 583's rule is to keep records that support income or a deduction until the period of limitations for that return runs out. Its Table 3 lists the periods; the common case is 3 years from filing. Employment tax records, if you ever have employees, are kept "for at least 4 years after the date the tax becomes due or is paid, whichever is later." Records for property stay until the limitations period runs out for the year you dispose of it. Keep copies of the filed returns. These are minimums, and storage is cheap.

What to hand a CPA at year end

The reconciled ledger and profit and loss report, every 1099 you received, anyone you paid as a contractor, with their W-9s (the 1099-NEC threshold was $600 for 2025 payments and is $2,000 for payments made in 2026 and later, per the IRS instructions for Forms 1099-MISC and 1099-NEC), the mileage log, any home office figures, and your estimated payments with dates. The attached checklist has the full list.

This is how I keep my own books and what the linked IRS and Oregon pages say, not tax or accounting advice; a CPA gets the final word on your return.

Further reading

• IRS: Publication 583, Starting a Business and Keeping Records. The source for the separate account, the two accounting methods and the retention periods.
• IRS: Publication 334, Tax Guide for Small Business. Chapter 10 is the self-employment tax section with the current rate and wage base.
• IRS: Instructions for Schedule C (Form 1040), 2025. Where each expense line is defined; lines 9, 17, 23 and 30 answer most solo-practice questions.
• Oregon Department of Revenue: Corporate Activity Tax. The threshold table that puts a solo practice outside the CAT entirely.
• Oregon Department of Revenue: Withholding and Payroll Tax. Who must register for a BIN, and the corporate officer exception.