The new year is right around the corner—meaning that massage therapy documents should be lined up, ready for entry into tax forms. Few LMTs would claim that taxes are fun—but they don’t have to be terrifying, if you have your materials organized well. Preparation is the name of the game here. Don’t put off gathering your documents until the last minute. Procrastination will only make tax preparation harder. To kick start tax season, we’ve gathered a few tax tips specifically for LMTs.
Tax Preparation Strategies for Licensed Massage Therapists
- Figure Gross Receipts. Uber-prepared therapists keep a running record of their income for the year. This may be accomplished through spreadsheets, written journals, or accounting software. If you haven’t been tracking as you go, simply check your client logs. Review your client scheduler for the year, and multiply the number of clients you served by your hourly rate. Tips should be included—if you haven’t kept records of your receipts, estimate according to the average tip you receive.
- Calculate Business Expenses. Again, tracking as you go is the easiest method. One easy way to track business expenses is to store all receipts in a large manila envelope. On the outside of the envelope, keep a running record of expenses. The description for each business expense should include the purchase date, the vendor, the total expense, and a description of each purchase. This approach will make it easy to calculate business expenses as tax time approaches.
Another organizational approach is to use a 12-pocket file folder to store receipts—organize expenses by putting each month’s receipts in a separate folder.
The IRS states that business expenses that are “ordinary and necessary” may be written off. Here are a few examples of ordinary (common in the massage therapy trade) and necessary (appropriate/helpful for doing business as an LMT) expenses you can write off as a massage therapist:
–Essential oils & other aromatherapy costs
–Oils, creams, and lotions
–Massage tables, pillows, towels, linens, and blankets
–Heating pads, massage stones, stone and towel heaters
–Work-related clothing, such as scrubs if you work in a clinic
–Rent for your massage space
–Costs associated with your LMT license
–Travel for a massage class
–Music for massage background
If you haven’t been tracking expenses along the way, you’ll need extra time for research. Search through your credit card statements, bank statements, and emails for any relevant business expenses. Be sure to include larger purchases, such as computers, massage tables, and continuing education. As you gather information, sort purchases into categories, such as linens, continuing education costs, massage materials, etc. Total the expenses for each category; tax preparation software can walk you through a return once your expenses and gross receipts are totaled.
- File the Correct Forms.
If you conduct business for yourself as a sole proprietor or independent contractor (as many LMTs do) the IRS requires you to file a Schedule C or Schedule CZ, in addition to a 1040 form. Assuming you earned more than $400 during the year, you must also file a Schedule SE form, to specify self-employment tax.
There are tax preparation programs available, which walk you through the same questions an accountant would be likely to ask. These questions are meant to help you consider every possible write-off. If it’s your first year of doing business as an LMT, you may consider hiring a professional. That way you’ll be sure that all your schooling and practice set-up costs are appropriately deducted.
- Write off Travel Expenses.
If possible, keep a log of the mileage you put on your vehicle while working as an independent contractor. While this approach does require preparation—namely creating a mileage spreadsheet and tracking business versus personal miles—it makes it far easier to write off travel expenses at the end of the year. The IRS allows you to itemize travel expenses—tires, gas, repairs, and so forth—but this means you must track all of these expenses and list each separately. Many find it easier to calculate travel deductions using the IRS’ 2014 standard mileage rate of 56 cents per mile driven for business purposes. To ensure you’re only writing off business purposes, it’s helpful to keep a log of where you drive. Personal mileage cannot be written off, but if a trip includes both personal and business purposes, you can write off the business portion. If you haven’t been tracking mileage for this year, you’ll need to estimate as best you can, or dig through your receipts and account statements for travel-related expenses.
- Write off a Portion of your Rent/Mortgage
You may be able to write off a portion of your mortgage/rent if you provide massage out of your home. The same is true for utility bills, repair expenses, mortgage interest, property taxes, and fire and homeowners insurance.
In order to qualify for this write off, the portion of your home where you provide massage must be used only for that purpose, and it must be used regularly. To calculate this write off amount, you can determine the percentage of your home used for business according to square feet (i.e. your office is 350 square feet and your whole home is 1200 square feet, so you use about 30% of your home for business) or according to the number of rooms used for business, if all the rooms are about the same size. The percentage of the home used exclusively for massage corresponds to the portion of your mortgage, utility, and other home costs you can write off on your taxes.
- Take Advantage of Free Tax Help.
Here in Oregon, there are multiple ways to get free help on filing your taxes. CASH Oregon provides free tax preparation for those whose annual income is less than $50,000. (There are exceptions, visit cashoregon.gov for more details.) In Portland, the Multnomah County Library offers free assistance with taxes. The IRS also offers assistance online at IRS.gov, over the phone at 1-800-829-1040 (expect long holds) and in person at taxpayer assistance centers. The local taxpayer assistance center is located at 1220 SW Third Avenue, and it is open Monday through Friday from 8:30am to 4:30pm.
- Make Quarterly Estimated Payments.
Assuming you expect to owe at least $1000 in taxes each year, the IRS expects you to make quarterly tax payments on the fifteenth of April, June, September, and January. If you fail to make quarterly payments, the IRS may charge a penalty and/or interest. While the interest may not be huge, it’s wise to get into the habit of paying quarterly. Otherwise, your yearly tax amount may come as a shock.
Automated quarterly tax payments may be arranged through the Electronic Federal Tax Payment System at eftps.gov.
A massage therapy license brings special freedoms and unique responsibilities. LMTs have the freedom to operate independently, providing manual healing according to their own preferred schedule, and work in modalities that interest them. Along with these freedoms come additional responsibilities, especially as far as tax preparation is concerned. Just as you take time to ensure your massage certification/licensure is in order, it’s important to protect your business by dedicating ample time to tax preparation. By following these tax filing tips, LMTs can enjoy confidence and peace of mind come April 15th.