If you're new to Heard, you might be getting the hang of how to categorize your bank transactions. Heard's Bookkeeping Team is made up of helpful, responsive members who will get your practice's books up to date, and they'll teach you how to categorize transactions so you can do them moving forward.
We've compiled this glossary of the most common categorizations you'll use while reviewing transactions. As always, if you have further questions, please reach out to us via Messages.
Income
We refer to income as money going into your business bank account. These income categories are included as part of your profit and loss statement.
Please note: W-2 salaries and income from other businesses don't count and shouldn't go into your business bank account.
Client Discounts / Refunds: Refunds to clients due to overpayment or discount(s) provided
Please note: This does not include a sliding fee scale or pro bono sessions.
Consulting Income: income earned from providing consulting services to individuals or organizations.
Interest Income: income earned from savings, money market, or investment accounts.
Retail Income: income earned from selling products or goods (e.g., merchandise, ebooks)
Please note: Heard does not track sales tax; however, the system you use for payments should handle the sales tax portion.
Speaking Income: income earned from speaking engagements, presentations, or lectures.
Supervision Income: income earned from providing clinical supervision.
Teaching Income: income earned from providing educational instruction in a formal setting.
Therapy income: income a private practice therapist generates from providing individual, couples, or family therapy. (Income can be received from Stripe, insurance companies, Simple Practice, Venmo, Zelle, IVY pay, checks, etc.)
Uncategorized Income: income received from any other source.
Other income: income from non-regular business sources and 'cash back' rewards when they cannot be directly applied to a single expense transaction. Common forms of other income are cash rewards for business bank accounts.
Expenses
We refer to expenses as money that's leaving your business banking account and going to an external account to cover purchases. These expense categories are included as part of your profit and loss statement.
Accounting Fees: any fees therapists pay for an accountant or bookkeeper to set up or keep the business books, prepare business tax returns, or provide tax consultation advice. For example: Heard.
Advertising and Marketing: expenses incurred to promote your private practice to obtain new clientele, website hosting fees, content marketing, photoshoots specifically for business advertising, or magazines. Examples: Psychology Today, Inclusive Therapists, Squarespace.
Bank Service Charges: Any expense that is incurred as a result of a bank account/credit card or bank account/credit card transaction.
Business Fees, Licenses, and Permits: fees paid for the renewal of professional licenses or for keeping the business running. This includes state/city business renewals and permits, therapy-related licensing, etc.
Clinical Supervision Fees: expenses incurred for receiving professional supervision.
Commissions & Fees: Any expenses for commissions and fees paid to independent contractors for their services.
Communication Expenses: any expense incurred for communication purposes for the practice, such as between therapists and clients, therapists and therapists, etc. This could include a phone bill from vendors such as T-Mobile, Verizon, Sprint, and AT&T.
Computer: Hardware < $2,500: Any expense for computer equipment or accessories (headphones, printers, etc) for the business less than $2,500.
Continuing Education: Formal, structured learning experiences designed to enhance professional knowledge and skills. These activities are often required to maintain professional licenses or certifications.
Credit Card Merchant Fees: fees incurred for processing credit card transactions by a merchant service to a vendor.
Depreciation Expense: any depreciation expense recorded against intangible business assets.
Dues & Subscriptions: payment of professional dues or a subscription for the business or business owners and employees, such as AAMFT membership.
Equipment < $2,500: Any expense for equipment purchased for the use of the business less than $2,500.
Furniture < $2,500: Any expense for office furniture purchased for the use of the business less than $2,500.
Gifts: gift items given directly or indirectly to each person during the tax year.
Guaranteed Payments: Refer to compensation paid to LLC members (or partners) for services rendered or for the use of capital, regardless of profitability.
Insurance: Auto: Payments for auto insurance.
Insurance: General: Also known as liability insurance, it provides coverage for various liabilities that may arise in the course of business operations. Protects against claims of bodily injury, property damage, personal injury (such as defamation or false advertising), and other liabilities that therapists may face while providing services.
Insurance: Life: Any payment made for life insurance of the business owner(s) or the employees.
Insurance: Professional Liability: Also known as malpractice insurance, it provides coverage for legal claims made against a therapist arising from professional services rendered. Protects against potential lawsuits alleging negligence, errors, or omissions in the course of professional work.
Insurance: Property: Coverage for physical assets owned by the therapist's practice. It protects against risks like fire, theft, vandalism, and natural disasters.
Interest Expense: Any interest expense or charges incurred on business loans.
Internet: Any internet service provider (excludes travel internet).
Legal Fees: This category is reserved for common professional legal services.
Loan Repayment: Payments made to repay borrowed funds. The payments consist of two components: the principal (amount borrowed) and the interest (the cost of borrowing) but only the interest portion is deductible.
Loan Repayment: Car: Payments made towards repaying a car loan. The payments consist of two components: the principal (amount borrowed) and the interest (the cost of borrowing), but only the interest portion is deductible.
Maintenance & Repair: any payment made for the upkeep and maintenance of business facilities.
Meals & Entertainment: food and beverage purchases that are directly related to conducting business. These can include meals with clients, colleagues, or professional contacts where business discussions occur.
Office Expenses: any costs related to maintaining and operating the practice.
Other Expenses: any business-related expense that is out of the ordinary and can’t be classified into any of the categories. Please note explaining the expense is required, as "Other expenses" is a highly audited expense category by the IRS.
Parking & Tolls: parking and toll road expenses that are acquired while conducting business.
Payroll: Fees: all fees associated with processing Payroll.
Payroll: Contractors: any payment made for the utilization of a non-salaried individual for their services on behalf of the business that can't be categorized to a specific ledger. Includes reimbursements to contractors.
Payroll: Employee Benefits: Non-wage compensations provided to employees in addition to their regular wages or salaries. An employee benefits package could include life insurance, disability insurance, retirement contributions, etc.
Payroll: Payroll Taxes: the employer portion of payroll tax.
Payroll: Reimbursable Expenses: costs incurred by employees in the course of performing their job duties for which the employer agrees to reimburse them.
Payroll: Salaries & Wages: wages paid to employees of the practice.
Payroll: SUTA Expense: the employer portion of the State Unemployment Tax Act (SUTA) paid for an employee based on their wages.
Payroll: Workers Compensation: insurance that provides benefits to employees who suffer work-related injuries or illnesses.
Postage & Freight: any costs incurred for shipping and mailing services. Typical companies include USPS, UPS, FedEx, etc.
Professional Development: expenses through activities aimed at improving and expanding professional skills, knowledge, and networks.
Professional Fees: This category covers the cost of services provided by professionals other than accountants or lawyers who offer specialized knowledge and skills in professional services such as HR services, billing services, etc
Psychotherapy Fees: Costs associated with receiving psychotherapy services for professional development purposes such as seeing your own therapist.
Rent and Lease: expenses incurred for any practice-related rent and lease, such as office space, equipment, storage, etc.
Software Services: any software used for a private practice, ranging from client management software and billing software to document editing software such as Adobe. Costs associated with receiving psychotherapy services for professional development purposes such as YouTube, Amazon Prime, etc.
City/Local Taxes: a type of tax that the local government imposes on the business where the therapist resides locally or where they run the practice. This can come in many forms, such as sales tax, property taxes, etc.
Franchise Taxes: a tax that states charge corporations and other business entities, such as LLCs, for the privilege of incorporating or doing business in their state.
Testing & Reference Materials: this includes any assessment tools, psychological testing, books, etc.
Travel Expenses: expenses for locally moving around to conduct business. It includes car rentals, airline tickets, hotels, and travel insurance.
Uniforms & Laundry: uniforms or safety equipment bought for the business owner or employees.
Utilities: Essential services necessary to operate your business location. This could include water, electricity, gas, or trash fees.