American Massage Therapy Association^®

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Income

Most massage therapists will be cashbasis taxpayers, meaning they pay tax on the income at the time they receive it and deduct expenses when they write their check or from the date on their credit card statements.

Life would be easy if all of your clients paid at the time of service and you could simply deposit the money in your business checking account. But life is rarely that simple. You might have clients that need you to bill insurance, for example, and payment from an insurance company can take weeks, sometimes even arriving in a different taxable year. Remember, income isn't taxed according to the date the service was provided but the year in which payment was received.

You might also give your clients a variety of discounts for particular events or milestones, such as their birthday, senior citizen status or first-timers. These scenarios can present a dilemma for massage therapy professionals who want to record these transactions accurately.

As an example, let's assume the following: You charge $50 per hour and give seniors a $10 discount. A 75-year-old client comes in for her monthly massage and pays you $40 for the massage and gives you a $5 tip. There are three different ways you might record this transaction.

This income would be recorded on line 1 of your Schedule C tax return, and though correct as far as reporting the net profit, this option would not reflect exactly what happened.

This option separates the tip income, which can be recorded on line 6 of the Schedule C tax return. For the massage therapy profession, the IRS will be looking for tips, so I generally report this income separately to show I have accounted for them. This option is a better choice, but still doesn't reflect the entire transaction.

This option is the most thorough and accurate, accounting for every aspect of the transaction. When reporting income, remember to be as detailed as possible.

You need to reflect all income as income. Most sales are based on what your practice grossed, so these numbers will be particularly important if or when you sell your practice. If you consistently netted items against the income, the net profit on your tax return would be correct but the sales reported to the IRS would be lower than the service you actually provided.

By entering the full price of the massage, as seen in option 3, the income stays at full value and the discount is recorded as an expense. By reporting the discount as an expense, your income will be higher, in turn lowering your expense percentages when compared to the averages calculated by the IRS. If you have relatively few discounts for a year, you can put the total in line 27. Or, should you find you have a rather large number, you can create subaccounts for each type of discount and list them separately.

Reading List

Being able to quickly locate resources that can help you answer questions you might have during tax season will save you both time and frustration. Here is a list of a few items published by the Internal Revenue Service that can get you ready for April 15.

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