Would Your Practice Survive An Employment Tax Audit? (1099 vs. W-2 part 2)

Does the state tax commission really take the time to audit small private practices? I didn't think so, until my practice was selected for an audit.

A few years ago my clinic was selected for an employment tax audit. Lucky me, right? When the auditor walked into my office suite and saw many offices with different names on the doors, he looked at me pleadingly and said, "Please, please don't tell me that these therapists are all classified as 1099 contractors."

I replied, "I won't. We're all W-2's."

There was a look of relief on his face.He then proceeded to tell me that health and mental health private practitioners are notorious for incorrectly classifying 1099 employees. In his experience many groups are set up as contract workers when they are acting like employees (I'll go over into detail about the the IRS criteria for how to classify  an employee as a 1099 vs. W2 employees in a forthcoming post).

The auditor requested access to all of my financial documents including bank accounts, accounting,  payroll information and tax documents. He asked us questions about any large checks written directly to employees to make sure we were paying our employment taxes. After a brief review of my payroll and tax documents the auditor thanked me for making his job easier and left with a smile. I breathed a huge sigh of relief.

Had I hired the therapists working with me as 1099 I may have been penalized with a hefty fine and required to pay back employment taxes on all of the therapists' income. I was not in a position to shell out thousands and thousands of dollars. Had I been incorrectly classifying employees it may have put my practice in jeopardy.

Do you know the IRS criteria for classifying 1099 contract workers vs. W-2 employees? It isn't based on whether or not you want to pay your therapist's taxes or want to have them pay self-employment taxes. It isn't based on whether they are full-time or part-time workers. It isn't based on whether or not you provide benefits.

There are many misconceptions about classifying employees in private practice. I'll address theses criteria for how to distinguish between hiring 1099 vs. W-2 therapists in upcoming posts.

Watch for the next Therapist Blog Challenge coming next week, too!

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The Difference Between Hiring Therapists As 1099 vs. W-2 (part 1)

Should you hire additional therapists for your practice as 1099 or W-2 employees? I'll walk you through the decision process in this blog series so you can make an informed decision.

If your private practice is thriving and you are considering hiring additional therapists, one of the major questions is how to structure the employment relationship. Should you hire additional therapists as a 1099 contractor or W-2 employee?

In my private practice consulting experience and based on recent discussions in my Private Practice Toolbox Group it seems that most private practice therapists favor hiring therapists as 1099 contractors. When I ask why I often hear something like, "I hire 1099's because then I'm not responsible to pay the therapists employment taxes and it provides some cushion against legal responsibility for the acts of therapists providing contract services." While these statements are true, there is a lot more to consider when structuring the employment relationship and misclassification can be a costly mistake.

So what what's the difference between hiring a 1099 and W-2?

An 1099 independent contractor is a tax-related and legal term referring to an individual who contracts his or her services out to other businesses. An independent contractor is considered self-employed and is not considered an "employee" of the practice. The 1099 workers pays all of their own income tax in addition to self-employment taxes.

"Independent contractors do the work where, when and how they choose. Nobody tells them what order to do the job in, what hours to work, or when they can take off, " says Employment Attorney, Donna Ballman, author of How To Stand Up For Yourself Without Getting Fired.

A W-2 employee is an official employee of a company, or a private practice, whose taxes are withheld from and whose earnings are reported to the IRS at the year-end via a W-4.  The practice owner participates in paying the employees state and Federal taxes and has the ability to control how, where, and when the work is performed by the employee.

Michigan attorney Donald A DeLong says that control is the key issue. "If you control when the therapist works, where he/she works, how and when he/she gets paid, you require that he/she use your equipment, etc., then that worker is a (W-2) employee."

As I've researched this topic it is clear that there are no easy answers and a lot of grey areas. I hope to share some helpful information and resources over the next several posts to help you make the best choice when it comes to hiring.

The costs of inaccurately classifying employees

Inaccurately classifying workers can be very costly to an employer warns Vincent Porter, CPA of Porter & Company CPAs in Arlington Tx. Porter shares these words of caution with employers.

The IRS can conduct an audit of a business that is paying employees on a 1099 and hit them with back payroll taxes that can be very costly to a business not in compliance. This is a big issue we face almost daily with clients. They should understand that if they were to be audited by their State Unemployment agency or IRS they could face severe penalties for improperly classifying employees as contractors. Not only could they face unpaid employment taxes they could face heavy penalties.

In my next post in this series I'll tell you about my employment tax audit experience a few years ago!

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10 Ways To Become A Go-To Media Expert In Your Field

Want to tell thousands of people about your practice? Tips to landing regular media interviews.

What do you think of when you think of professional networking? Private practice therapists who I’ve worked with in business consultations usually consider networking to be meeting with other like-minded professionals for lunch or handing out business cards to physicians offices. While those are important ways to make connections that build your therapy practice, there are other ways to get the word to thousands and thousands of people in one shot, instead of just a few folks at a time.  Rarely do therapists think of networking with producers, reporters and journalists.

Over the last few years I’ve focused on developing relationships with producers, journalists, and reporters in various media platforms. There are a few who now contact me for quotes when they need expert quotes or interviews. I've landed regular local TV, radio, and news interviews as well as interviews with top-tier publications and shows: Wall Street Journal, Fox News, Parenting, Woman's Day, Women's Health, and others. Here are some things I’ve learned about what works when building relationships with reporters, journalists and producers.

1) Seek out opportunities

Keep an eye out for opportunities to interview with local and national reporters. Sign up for services that notify you of reporters looking for interviews, like Reporter Connection, ProfNet Connection, Expert Engine. Contact local radio, television, and newspaper companies and offer your expertise on newsworthy topics.

2) Know what’s ‘newsworthy’

When pitching stories or interview topics to local journalists and reporters it’s crucial to know what they’re looking for. Sorry, but the fact that you’re going into private practice specializing in family therapy is not newsworthy; however, news and other TV programs might be interested in getting your thoughts on a new study showing how cultivating self-compassion helps individuals manage divorce. I suggest getting into some “media-minded” habits:

• Watch national news headlines. Pitch a local spin on those stories to local TV producers.
• Suggest seasonal topics. Pitch interviews around managing holiday stress, or Halloween safety tips for children in October.
• New research is “news.” Keep an eye out for interesting research that’s relevant to your practice and offer to interview.

While what counts as newsworthy must be modified to your particular practice and community, MediaCollege.com generally defines a story as newsworthy if it has the following characteristics:

• Timing – News is all about stories that are current and new
• Significance – Something that affects large numbers of people
• Proximity – An event happening close to home
• Prominence – Involves someone famous or well-known
• Human Interest – Appeals to emotion, novel, off-beat, interesting

3) Know how to write a press release

When pitching to media you need to speak their language, which means learning how to write a press release.

• A press release needs to be in a specific press release format. Here’s an excellent example: EReleases.com.
• Read other releases. Here’s a release I helped one of my therapists at Wasatch Family Therapy, LLC write one recently based on her dissertation research: Mean Girls Get Married: Teens Don’t Always Grow Out of Mean Girl Behavior and End Up Using Emotional Manipulation On Spouse.
• Don’t send attachments. When you email a press release (or a pitch/proposal) to local news and TV producers, cut and paste it in the body of the email, do not send as an attachment (it’s one more thing that makes their job more difficult).

4) Respond to requests ASAP

I’ve come to realize that journalistic deadlines are incredibly tight, and the sooner I respond, the better. I’ve interviewed one afternoon for an E! Online article and it posted that same evening. When I get an email request for an interview I will respond right then on my smart phone with comments off the top of my head. I’ve been known to pull over on the side of the road while driving carpool to respond to an interview request. If a reporter or producer contacts you, respond immediately or the opportunity will pass you by. Decide ahead that you’ll say “yes” (and think about how you can make it a positive and confident “yes”).

5) Speak in layman's terms

Talking with the popular media is different than talking with colleagues. When speaking with therapists we can talk in short hand with acronyms like DBT, CBT and EFT; we know what transference and countertransference are, but most people don’t know and don’t care. In pitches and in correspondence always use layman’s terms that can be easily understood even if someone’s never taken Psychology 101.

6) Let your passion show

I think part of why I’ve been successful in getting quoted in national publications is because I show my passion for the work and for the topic of the story or article. Even in email correspondence, don’t be afraid to show your personality and to be approachable. I also openly share my gratitude for the interview opportunity and how much I enjoy media interviews.

7) Make your contact info easy to find

In all correspondence make sure that your name and credentials (the way you’d like them to appear if you’re quoted), your email address, and your cell phone number are easy to find in any correspondence or voicemail. Reporters don’t have time to hunt you down.

8) Know how to make their job easier

Reporters, producers, and journalists are extremely busy and always on multiple deadlines. They don’t have time to calm your anxiety or to walk you through the interview process.

• Send only relevant information. Highlight the most important information you’d like to talk about and a brief line or two about you and your practice or your “basic professional practice message” (see my elevator speech post). Through a brief stint as a producer and host of a local lifestyle TV show I learned what makes a good and a difficult interviewee. One of the hardest parts of screening potential guests was skimming through too much information hunting for the relevant points. You can always add more information as needed.
• Limit your correspondence. Respect the reporter’s, journalist’s or producer’s time. Though getting an interview might be a big deal for us as the therapist, it’s just one of many details they are trying to juggle.
• Know their demographics. Understand the demographic for a given newscast TV show, newspaper, or magazine so you can pitch relevant and helpful topics (have some “audience awareness”; if you don’t know the primary audience, ask).

9) Ask them to contact you again

At the end of each interview or correspondence, whether you interview or not, be sure to ask them to keep you in mind as a resource in the future and to keep your contact information should they need your expertise in the future. If you’re an easy expert to work with and you are eager to interview, my experience is that many journalists will take you up on your offer to interview again.

10) Be a resource

I’ve learned that offering myself as a resource is a great way to build bridges with the media. I often tell reporters, producers, and journalists contact me whenever they need someone to interview on a mental health or family relationship topic, and that if I can’t do it, or don’t feel qualified, I will find them someone who would do an excellent job.

Therapist Blog Challenge #3: Current Research On Love

Summarizing current research makes great blog article topics and helps you stay informed about relevant studies in your field of practice.

Since we celebrate Valentine's Day this month I want you to pick a current research study related to love and relationships for your Therapist Blog Challenge #3 topic. Summarize the study, then add your take on it. You may want to discuss why you picked this study, how your readers can apply the study's findings, what surprised you about the study, and what you learned. I can't wait to see what you come up with. Get blogging!

Feel free to find your own love-related studies or choose from these news stories on recent research from PsychCentral News:

Quick writing experiences seems to work magic for couples commitment

Men and women may not be so different after all

Marriage may lower risk of heart attack

Gen Xer's connect as much online as in person

Traditional distribution of chores = more sex

'First time' may influence sexual satisfaction for life

Kindness may be key to happiness for kids

Additional reminders:

• Write and post your blog article in the next 2 weeks. If you miss the deadline or you read this article months later, that's OK too.
• Post a link for this blog challenge in the comment section of this blog post.
• Read, comment, and share other therapist's articles.
• Tweet your post using hashtag #therapistblog and tag @julie_hanks so I can retweet it.
• Pin it on the challenge Pinterest Board. I've invited everyone who posted a comment on the initial blog challenge post as collaborators so you can pin onto the group board.
• Spread the word and invite mental health colleagues to join the challenge. Articles can be added anytime throughout the year.
• Write no more than 600 words, make it easy to read, use a conversational tone, and gear your articles toward your ideal client (not other professionals).
• The goal of a professional blog is to provide value your website visitors, help them get to know your professional perspective, increase traffic to your private practice website, and build your practice.

Adventures In Private Practice: Trauma Specialist Leticia Reed, LCSW

Less than one year ago Leticia Reed, LCSW opened her private practice in Long Beach, CA. Find out what resources and tools have helped Ms. Reed muster the courage to open her own practice, what she's learned from clients, and how she manages her roles as "therapist" and "business owner".

Tell me about your private practice...

I opened Reed Behavioral Solution in March of 2012. My practice mission is: "Helping individuals, couples and families achieve hope, healing, wellness and freedom. Empowering my clients to leave better than they arrived is what drives me to provide the best and most effective services. I specialize in women's empowerment and trauma, although I provide a wide range of services to other populations in my practice. I also offer Christian counseling for those seeking spiritual connectedness as a means of coping and regaining a sense of purpose and hope.

Why did you decide to open a private practice?

I began my practice after leaving employment with the County of Los Angeles and feeling like individuals were being failed by the system as they were only treated as a number that became lost in a revolving door. I felt like opening my practice provided me with an opportunity to make a significant impact, one with real rehabilitation and healing.

Clients that therapists find to be the most “difficult” are sometimes the ones who can teach them the most. What have you learned from your toughest clients?

I agree that "difficult" clients provide the most meaningful learning experiences. Through my more challenging cases, I have learned the importance of patience, tolerance, unconditional positive regard as well as the real importance of "starting where the client is" to guide them towards healing. The technique- Motivational interviewing has been the principle that I have incorporated to achieve this while increasing motivation.

What’s your biggest pet peeve about private practice?

One of my biggest pet peeve would be the amount of documentation required as it takes away from my time spent in direct contact with my clients. However, it's necessary as it also provides me with a blueprint and framework that guides my treatment and goals.

How did you discover or develop your practice “niche”?

My niche sort of evolved as the majority of my clientele seeking services has been women with self-esteem and trauma related issues.

What resource (book, website, person) helped you the most when setting up your private practice?

The various resources that have aided me in starting my private practice has been the following: Nakeya Fields of Fields Family Counseling who offers a workshop geared towards assisting individuals starts their private practice, while providing lifelong networking and consultation with other group members. I also used and received a wealth of information from Ofer Zur Institute Practice Handbook for HIPAA friendly forms and regulations. My mentor Cynthia G. Langely, my prior clinical supervisor who has many years in the field serving in various positions, including on the CA BBS panel when the Oral examinations were required, has continued to provide me with a wealth of information and support. Lastly, The various Facebook groups I am currently in, including Julie Hanks’s Private Practice Facebook group have also increased my knowledge that has been instrumental in keeping me current in the field.

What has surprised you most about being in private practice?

The things that have surprised me the most about building a private practice has to be the amount of work it takes to stay afloat and monetary resources needed to build and maintain operation. Another surprise has to do with the number of people hurting and in search of HOPE, some of which are fellow colleagues.

Has your private practice helped you grow professionally?

My private has influenced my growth professionally in the sense that it has taught me the importance of being organized, detailed oriented, punctual, and the importance of networking/collaboration.

Has it helped you grow personally, too?

On a personal level it has made me to be more grateful and attuned to the world and my purpose in it, helping me to not take anything for granted.

Being a therapist can be emotionally exhausting. What do you do to care for your own emotional and psychological health?  

Self-care is extremely important to me. I love pampering myself, traveling and engaging in church activities, reading my bible and praying. I also make it a point to surround myself with positive people that are encouraging and uplifting.

How do you cope with the inevitable stressors involved with being your own boss?

I cope with the stressors of being my own boss by consulting with colleagues in practice and digging my heels in the sand and "just doing it". My tenacious spirit and optimistic personality as well as my strong Faith in God has assisted me in my success in this short amount of time I have been practice. Colleagues that know when I began have commented on my rapid success. I am a very blessed woman and I am looking forward to even more expansion in 2013 and beyond.

Find out more about Leticia Reed's private practice at www.reedbsolutions.com