Common Questions
Answers to the questions we hear most from medical practices, business owners, and families about bookkeeping, payroll, and taxes.
Why don't our insurance collections match what actually hits the bank?
Your billing system and your bank are recording different things at different times. Timing gaps, batched deposits, misread adjustment codes, and payer recoupments all pull the numbers apart. A regular three-way match between remittances, posted payments, and bank deposits shows you exactly where the difference is.
Read answerHow should a medical practice owner pay themselves: salary, distributions, or both?
It depends on how the practice is taxed. Sole proprietors and partners take draws and pay self-employment tax on profit. S-corp owners need a reasonable salary through payroll and can take the rest as distributions, but the tax savings are usually smaller than physicians expect.
Read answerHow much does bookkeeping cost for a medical practice?
Most independent medical practices pay $500 to $1,500 a month for bookkeeping, depending on providers, entities, transaction volume, and whether the books are current. Bundled with payroll and tax, solo practices typically run $750 to $1,200 a month and groups of two to six providers run $1,500 to $2,750.
Read answerHow should a med spa account for prepaid packages, memberships, and gift cards?
Prepaid packages, memberships, and gift cards are deferred revenue, a liability, until the service is delivered. Packages are earned session by session, memberships evenly over the term, and gift cards when they are redeemed.
Read answerCan doctors take the 20% QBI deduction?
Yes, but only if taxable income stays below certain limits. Medicine is a specified service business under Section 199A, so for 2026 the deduction phases out between $201,750 and $276,750 for single filers and between $403,500 and $553,500 for married couples filing jointly.
Read answerHow do group therapy practices calculate session-based clinician pay each pay period?
Pay is calculated by applying each clinician's compensation agreement to the sessions they completed during the period. The math is usually simple. The hard part is getting accurate session counts and clear rules for billed versus collected amounts, no-shows, and insurance recoupments.
Read answerDoes an S-corp election still make sense for a medical practice?
Often yes, but not automatically. The payroll tax savings are smaller than most physicians expect once a reasonable salary passes the Social Security wage base, so QBI, state taxes, and retirement plans can decide the question.
Read answerWhat is a PTET election and should our practice consider one?
A PTET election lets an S-corp or partnership pay state income tax at the entity level, where it is deductible on the federal return instead of being limited by the SALT cap. For practice owners with income above roughly $500,000, it is often the main way to get any federal benefit from the state income tax they pay.
Read answerWhat is a cash balance plan and is it worth it for a practice owner?
A cash balance plan is a type of pension plan that lets high-earning practice owners contribute and deduct far more than a 401(k) allows, often $100,000 to $300,000 or more a year. It's usually worth it for owners in their 40s to 60s with steady profits who can commit to funding it for several years and cover a modest contribution for staff.
Read answerHow common is embezzlement in medical practices, and how do we prevent it?
Embezzlement is very common. In a 2009 MGMA survey, 83% of responding practices said they had been victims at some point, and thefts often run 8 to 24 months before anyone notices. Separating duties, reviewing statements yourself, and having an outside bookkeeper reconcile every account monthly are the controls that stop it.
Read answerShould our practice own its building through a separate entity?
For most practices that own or plan to buy their building, a separate LLC that holds the real estate and leases it to the practice is the better setup. It separates clinical risk from property risk and makes partner changes and a future sale easier. It only works if the lease is set up correctly and each entity keeps its own books.
Read answerWhat overhead percentage is normal for a medical practice?
Most private medical practices spend about 60% of revenue on overhead, according to MGMA. Primary care runs near that figure, while procedural and surgical specialties often run 40% to 50%. The comparison only means something if your books classify expenses the same way every month.
Read answerShould a medical practice use cash or accrual accounting?
Most independent practices are best served filing taxes on the cash basis, which is simpler and only taxes money that has actually been collected. Cash numbers can hide unpaid insurance claims, prepaid memberships, and bills owed, so it helps to also review accrual-style reports for management decisions, loans, partner buy-ins, and sales.
Read answerHow are partner and provider pay calculated in a physician group?
Pay is calculated from the group's written compensation agreements, which usually combine a production measure like wRVUs or collections with overhead allocation, base salary, productivity bonuses, and draws. Stark Law limits what a group can credit toward productivity pay, so the calculation has to follow the agreement exactly.
Read answerShould therapists in a group practice be W-2 employees or 1099 contractors?
Classification depends on how the therapist actually works, not on what the contract calls them. If your practice sets schedules, assigns clients, sets fees, and provides the office and EHR, your therapists are likely employees. Have an employment attorney review any classification decision.
Read answerWhat does it really cost to add a therapist to a group practice?
Most owners find that the true first-year cost of a new therapist runs well above the salary. Payroll taxes, benefits, paid time off, malpractice, software, and office space all add to it. The bigger expense is often the months of credentialing and caseload building before the new clinician brings in steady revenue.
Read answerWhy is my therapy practice busy but always short on cash?
A full schedule measures sessions delivered, but your bank account measures payments received, and those can be weeks apart. Slow insurance payments, denials, uncredentialed clinicians, no-shows, unplanned taxes, and owner draws based on the bank balance are the usual causes.
Read answerHow do I know which med spa treatments are actually profitable?
Calculate profit for each treatment by subtracting product cost, injector commission, and a share of room time and overhead from the price clients actually pay. Injectables often look healthy on the menu but leave little after product and commissions, especially at membership or package rates.
Read answerWhat is an MSO, and how does it change my med spa's bookkeeping?
An MSO is a management company, owned by the med spa's business owner, that provides space, staff, and administration to a separate physician-owned medical entity. The split means two sets of books, two bank accounts, two tax returns, and a management fee that has to be recorded the same way on both sides.
Read answerShould med spa nurse injectors be W-2 employees or 1099 contractors?
In most med spas, nurse injectors should be W-2 employees. Classification depends on how the work actually happens, not what the contract says. A 1099 arrangement is only defensible when the injector truly runs an independent business.
Read answerDo med spas have to charge sales tax?
Usually on part of what you sell. Medical and aesthetic treatments are generally exempt, but skincare, cosmetics, and other take-home products are taxable in most states. You need a seller's permit wherever you make taxable sales and books that keep product sales separate from service revenue.
Read answerHow should a med spa track injectable and product inventory?
Log every vial and syringe on arrival with lot number, expiration date, and cost, then tie each opened unit to a patient, treatment, and injector. Count regularly, investigate any gap between units purchased and units charted, and record manufacturer rebates as a reduction of product cost.
Read answerHow should a concierge or direct primary care practice record membership fees?
Membership fees are recorded as revenue over the period they cover, not when the money is collected. Annual fees paid upfront go to deferred revenue and are recognized one twelfth at a time, while monthly fees count in the month they cover. Refunds should follow the membership agreement, and add-on services belong in separate income accounts.
Read answerCan patients use HSA funds for direct primary care memberships in 2026?
Yes. Starting January 1, 2026, a qualifying direct primary care membership no longer disqualifies a patient from contributing to an HSA, and HSA funds can pay the membership fee. The fee must be fixed and stay within $150 per month for an individual or $300 per month for more than one person.
Read answerHow do I set up the books before opening a direct primary care or concierge practice?
Start a few months before opening. Choose your entity and tax election, get an EIN, open business accounts, and set up QuickBooks Online and Gusto. Then connect your membership platform so fees post correctly and track startup costs from day one.
Read answerHow much working capital do I need when opening a new medical practice?
Enough to cover your full expenses, plus your own living costs, until collections catch up. For insurance-based practices that often means six months or more because credentialing and claim payment take time. A month-by-month forecast for the first 12 to 18 months gives you a real number instead of a guess.
Read answerDo functional medicine and integrative clinics have to charge sales tax on supplements?
Often, yes. It depends on the state, whether the practitioner can prescribe, and how the supplements are sold. Shipping supplements to patients in other states can create tax obligations there too.
Read answerHow is associate dentist pay calculated from production or collections?
Associate dentist pay is calculated from the associate's written agreement, usually as a percentage of collections or a lower percentage of production. The details that matter most are how production is defined, how insurance write-offs and lab fees are handled, and whether a daily guarantee or draw is reconciled against it.
Read answerWhat should a dental practice owner review in their books every month?
Review a closed profit and loss statement against last month and the same month last year, your collection ratio, overhead by category as a percentage of collections, and accounts receivable split between insurance and patients. Then check associate pay against production reports and compare your cash to upcoming loan and tax payments.
Read answerWhat numbers should a physical therapy clinic owner track each month?
Track visits per therapist per day, net revenue per visit, units billed per visit, cancellation and no-show rate, payer mix, labor cost as a percentage of revenue, and days in accounts receivable. Benchmarks vary by source, so the real value comes from tracking the same numbers the same way every month from closed books.
Read answerHow is productivity-based pay calculated for physical therapists and chiropractors?
Productivity pay follows each clinician's compensation agreement, usually based on visits completed, units billed, or collections, sometimes on top of a base salary or above a threshold. The math is simple. Most of the work is clean data from the practice management system and clear rules for billed versus collected amounts, cancellations, denials, and PTA visits.
Read answerDo optometrists have to charge sales tax on glasses and contact lenses?
It depends on the state. Most states exempt prescription eyeglasses, but frames, contact lenses, and non-prescription items are treated differently from state to state, and exam fees are generally not taxable. California has its own rule that puts the tax on the optometrist's purchases instead of the patient's bill.
Read answerHow should an optometry or audiology practice track frame, lens, and hearing aid inventory?
Track every frame, lens, and hearing aid by item with its cost, count it on a regular schedule, and record cost of goods sold when the product is dispensed instead of when you buy it. Keep exam revenue separate from product revenue so you can measure optical capture rate and margins on each product line.
Read answerI'm an employed physician doing locums or expert witness work on the side. What taxes do I owe?
You owe federal income tax, self-employment tax, and usually state income tax on your net side income, and none of it is withheld for you. Most employed physicians should set aside around 40% of their side profit and pay it through quarterly estimates or extra W-2 withholding.
Read answerCan an employed physician open a solo 401(k) for side income?
Yes, if the side income is self-employment income from locums, expert witness work, consulting, or a 1099 directorship. If you already max your deferrals at work, you can usually still add an employer contribution of about 20% of net side earnings, which lowers your taxable income.
Read answerShould I form an LLC or S-corp for my medical side income?
Usually not an S-corp, at least not right away. A single-member LLC adds liability separation but is taxed like a sole proprietorship by default. If your W-2 salary already exceeds the Social Security wage base, an S-corp only saves Medicare tax on distributions, which often doesn't cover the added costs.
Read answerDoes an outside bookkeeper need a HIPAA business associate agreement?
Yes, if the bookkeeper creates, receives, or can access protected health information while working for your practice. That includes billing reports, remittance files, and logins to your practice management system. Sign the BAA before any access is granted, and keep patient details out of the accounting records where you can.
Read answerWhat's the difference between an enrolled agent, a CPA, and a bookkeeping and tax firm?
An enrolled agent is an IRS-licensed tax specialist who can represent you in audits, collections, and appeals. A CPA is licensed by a state board and is the only professional who can audit or attest to financial statements. A bookkeeping and tax firm is a business that handles your monthly books, payroll, and tax returns, and the people inside it may hold either credential.
Read answerHow do small medical practices hire well without an HR department?
Write a clear job description, set pay against local benchmarks, and use the same interview process for every candidate. Put the offer in writing and have onboarding paperwork and an employee handbook ready before day one so every hire starts the same way.
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