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 that 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.
Since you might be in the learning process still, 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 through the Heard Inbox.
We refer to income as money going into your business bank account.
Therapy-related income: the revenue a private practice therapist generates from doing one-on-one therapy appointments with clients. (Revenue can be received from Stripe, insurance companies, Simple practice, Venmo, Zelle, IVY pay, checks, etc.)
Other income: income that can come from a various amount of streams. Common forms of other income are cash rewards for business bank accounts
*W-2 salaries and income from other businesses doesn't count and shouldn't go into this business bank account.
We refer to expenses as money that's leaving your business banking account and going to an external account to cover purchases.
Payroll - employee benefits: employee benefits provided to employees in addition to their base salaries and wages. An employee benefit package could include life insurance, disability insurance, retirement contributions, etc.
Reimbursed expenses: payments made by the therapist to an employee who has made a claim for expenses incurred out of their pocket for the business, through work-related activities.
Payroll - contractors: payroll payments for 1099s independent contractors.
Payroll- Taxes: the amount of withdrawal from the employee’s paycheck that the employer portion of a variety of taxes such as FUTA, SUTA, Social Security, Medicare, etc. paid for an employee based on their wages.
Payroll- salaries and wages: employee pay.
Payroll- Worker Compensation: a type of insurance regulated by the state law that pays benefits to workers who become injured and disabled. Typically deducted from payroll.
Clinical supervision: this is typically paid directly to the individual (Venmo, Paypal, Zelle), via check, or directly on the supervisor’s website.
Testing & reference materials: this includes any assessment tools, psychological testing, etc.
Psychotherapy fees: therapy fees incurred for seeing your own therapist
Continuing education (CE): courses to remain a licensed professional in the field and/or educational courses that broaden the therapist's knowledge of the field.
Examples: Vista Continuing Education, PESI, Ackerman Institute For the Family.
Advertising & marketing: expenses incurred to promote the private practice, to obtain new clientele, website hosting fees, photoshoots specifically for business advertising, or magazines.
Examples: Psychology Today, Inclusive Therapists, Squarespace.
Dues & subscriptions: membership fees for professional organizations, associations or alliances. Subscription payments for journals, newsletters, etc.
Example: AAA membership.
Professional fees: professional services such as HR services, billing services, etc
Software fees: Any software used for a private practice, ranging from client management software, billing software to document editing software such as Adobe.
Examples: Simple Practice, GSuite.
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.
Legal fees: any fees or disbursements for legal services and experts such as lawyers and attorneys.
Professional development: refers to the process of identifying goals and learning new skills to help mental health therapists grow and succeed at owning their own practice. Business consulting sessions for business development, coaching sessions on how to run a successful private practice, etc.
Commissions & fees: amounts paid for services rendered on behalf of a therapist's practice. This does not include payments to independent contractors.
Rent & lease: expense incurred for any practice-related rent and lease such as office space, equipment, storage, etc.
Utilities: utility bill for operating an office space. This could include water, electricity, gas, or trash fees.
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.
Internet: payments for monthly Wifi expenses. Phone and internet are often bundled together. You can categorize it in either Communication Expenses or Internet, but please ensure to choose one category and use it consistently.
Office expenses: any costs related to maintaining and operating the practice. This could range from office supplies, certain pieces of furniture and equipment (less than $2500 value), etc.
Business fees, licenses & permits: fees paid for renewal of professional licenses or for keeping the business running. This includes state/city business renewals and permits, therapy-related licensing, etc.
Postage & freight: any costs incurred for shipping and mailing services. Typical companies such as USPS, UPS, FedEx, etc.
Meals & entertainment: any meals expensed that are considered “necessary” and “ordinary” to the practice.
Travel expenses: ordinary and necessary expenses of traveling away from home for business, professional or job.
Examples: airfare and lodging, transportation services, rental cars, meals, etc.
Charitable donation: donations made to IRS 501(c)(3) organizations are deductible expenses. Anything outside of this is considered personal.
Credit card merchant fees: fees incurred for processing credit card transactions by a merchant service to a vendor.
Bank service charge: fees charged for services such as bank charging a fee for using an ATM outside of its network or a vendor charging a fee for making payment with a credit card.
Professional liability insurance: business insurance that protects a therapist's practice of professional liability. E.g. lawsuits, claims, etc.
Other expenses: any business-related expenses that is out of the ordinary and can’t be classified into any of the categories belong here. An additional note explaining the expense is required, as "Other expenses" is a highly audited expense category by the IRS.
Taxes: city/local taxes: a type of tax that is imposed by the local government where the therapist resides locally or where they run the practice. This can come in many forms such as sales tax, property taxes, etc.
Taxes: franchise taxes: a tax that states charge on corporations and other business entities such as LLC for the privilege of incorporating or doing business in their state.
S-Corp health insurance: health insurance premiums are deductible for S-corp practice owners only if they are included in the shareholder-employee’s wages.
We refer to equity as the ownership of assets that may have debts or other liabilities attached to them.
S-Corp owner's investments: funds from a shareholder’s personal account which are deposited into the business in order to facilitate with the daily operations of the business.
S-Corp owner's distributions: funds leaving a shareholder’s business account and going directly into the shareholder’s bank account. A note: S-Corp owners can’t take a draw that is in excess of the net profit.
Owner's investments: a deposit of funds into a sole proprietor client’s business account. Any cash infusion into the business is considered an Owner’s investment.
Examples: cash infusions to start business/keep it running, paying for expenses on behalf of the business
Owner's distributions: an owner’s distribution is a draw from a client’s business checking account into their personal account.
Other common categories
Credit card payments: these payments are made out of a company's checking account in order to pay down any revolving credit which they have accumulated on their business line of credit.
*An important note: this category can only be used if the payment was made from a business checking account to pay down a business credit card.
Money transfer: transfers made from one bank account to another. This is typically a transfer between a business checking account and a business savings account.