Bookkeeping for therapists: 5 common errors online practitioners make (and how to avoid them)

Online therapy in the US has surged since the pandemic, with more therapists transitioning to virtual sessions.

Did you know?

In a mid-pandemic industry survey, 68% of US psychologists said they had longer waitlists than before COVID-19, and two-thirds couldn’t accept new patients.

~ 2021 COVID-19 Practitioner Survey

With many therapists reporting longer waitlists, the pressure to manage both client care and business operations is mounting. As an online therapist, you’re juggling virtual sessions, staying updated on new techniques, trying to stay complaint with HIPAA-compliant bookkeeping practices, and running your business—all while facing potential burnout from the increased workload.

With so much to manage, it’s easy for bookkeeping to slip through the cracks. But those small, overlooked errors can add up fast, leading to cash flow issues that put your practice at risk.

Missing out on tax deductions for your home office or telehealth tools could mean thousands of dollars left on the table. And that’s just one of the many common mistakes online therapists make when it comes to managing their finances.

In this bookkeeping for therapists blog, we’ll break down the five most common bookkeeping mistakes online therapists in the US make and, more importantly, how to avoid them.

Mistake #1: Not keeping track of income from different platforms

Many therapists offer sessions through various platforms like Zoom, Skype, telehealth apps (BetterHelp, Talkspace), or directly from their websites. While this flexibility is great for clients, it can quickly complicate your bookkeeping if you’re not tracking income from each source accurately.

Failing to track income properly can lead to underreporting or overreporting your earnings—both of which come with consequences.

  • Underreporting could trigger audits, penalties, or back taxes from the IRS.
  • Overreporting means you’re paying more taxes than necessary, which is like giving the IRS an unintended tip.

Additionally, without accurate records, it’s hard to gauge how each platform is performing. Are in-person sessions more profitable? Is an insurance provider underpaying you? If you don’t have clear records, you won’t know.

How to fix it

  • Invest in bookkeeping software: Use a central tool like QuickBooks or Wave to integrate income from all platforms. This keeps everything in one place, minimizing the chance of missing payments.
  • Make regular check-ins: Set aside time weekly (say, every Friday) to review your income sources and ensure nothing slips through the cracks.

Also read: How to prepare journal entries for your business

Mistake #2: Forgetting to adjust for late arrivals or short sessions

Late arrivals and short sessions are common, but adjusting the billing often gets overlooked in the moment. This can end up costing you both time and income if it happens frequently.

When clients are late, you’re still there waiting, and that time is lost. For example, if a client arrives 15 minutes late but you still provide the full session, you’re essentially working extra without compensation. Conversely, if a session ends early and you don’t adjust the billing, you risk overcharging your client, leading to misunderstandings or awkward conversations.

Over time, these small gaps can quietly add up, impacting both your income and client relationships.

How to avoid it

  • Set clear policies: Have a policy that charges for the full session, even if a client is late. For example: “If you’re more than 10 minutes late, the session will still end at the scheduled time, and you’ll be charged for the full session.” This protects your time and encourages punctuality.
  • Use scheduling software: Tools like Calendly or Acuity can automatically track session times and adjust billing accordingly, saving you from manual adjustments.
  • Invoice promptly: Send invoices right after a session to avoid confusion and maintain a steady cash flow.

Mistake #3: Missing out on tax-deductible expenses for therapists

If you’re running therapy sessions from home, paying for training, or using telehealth platforms, you could be missing out on valuable tax deductions. These expenses qualify as legitimate business deductions that can lower your taxable income and save you money come tax season.

Missing out on these deductions means paying more in taxes than necessary, limiting your ability to reinvest in your practice or enjoy personal rewards. Over time, those unclaimed deductions add up, potentially costing you a small fortune.

How to avoid it

  • Home office deduction: If you use part of your home exclusively for your therapy practice, you can deduct a portion of your home expenses (e.g., rent, utilities, and maintenance). For simplicity, the IRS also offers a $5 per square foot deduction, up to 300 square feet.
  • Track professional development and digital tools: Expenses for courses, workshops, telehealth platforms, and EHR systems are tax-deductible expenses for therapists. Use apps like Expensify or Wave Receipts to track these costs in real-time.
  • Consult a tax professional: A tax expert can help you identify overlooked deductions, like internet usage or software subscriptions, ensuring you get the most out of your tax return while staying compliant with the IRS.

Also read: How to prepare journal entries for your business

Mistake # 4: Messing up insurance billing and claims

Insurance billing can be tricky, with rules and codes that seem to change constantly. If you’ve ever found yourself buried in paperwork, confused by shifting CPT codes, or frustrated by complicated claims processes, you’re not alone.

Even experienced therapists run into issues like coding errors, incomplete forms, or missed deadlines—leading to delayed or denied payments.

Did you know?

Over $260 billion in healthcare claims were denied in a single year, many due to simple bookkeeping errors.

When insurance billing goes wrong, it hits your cash flow hard. Delayed or denied claims can create financial strain, making it difficult to keep your practice running smoothly. Over time, repeated billing mistakes can lead to unhappy clients, insurance company frustrations, and even the risk of an audit.

How to avoid it

  • Stay updated on codes and regulations: CPT codes and insurance rules are always changing. Make it a habit to check for updates from the American Medical Association (AMA) and your insurance providers, especially for telehealth services, which have seen major changes since the pandemic.
  • Use specialized billing software: Tools like SimplePractice or TherapyNotes are designed for therapists and come with built-in insurance billing features. These platforms help ensure accuracy, streamline the process, and track your claims to prevent them from slipping through the cracks.
  • Verify coverage before treatment: Take a few minutes before treatment to verify a client’s insurance coverage, copays, and pre-authorization requirements. This small step can prevent denied claims and save you headaches down the line.
  • Consider outsourcing: If insurance billing has become overwhelming, consider outsourcing to a medical billing professional. They’re experts in handling claims, saving you time, and ensuring accuracy.

Mistake # 5: Trying to do all the bookkeeping yourself

As David Allen wisely said, “You can do anything, but not everything.” Running your own therapy practice already means juggling multiple roles—therapist, business owner, and, often, an unwilling bookkeeper.

It may seem manageable at first, but eventually, the balancing act gets tricky, and that’s when bookkeeping errors start to slip in.

Handling your own bookkeeping without the right expertise or enough time can lead to costly mistakes. Misreporting income or missing deductions could put you at odds with the IRS, and let’s face it—nobody wants to deal with a tax audit because of a spreadsheet error.

Beyond that, wearing too many hats can leave you feeling burnt out. When you’re stretched thin, it’s hard to give your clients your full attention, especially when you’re distracted by the bookkeeping tasks hanging over your head.

Also read: How to outsource bookkeeping for your small business

How to avoid it

  • Hire a professional bookkeeper: Bringing in a bookkeeper who understands your profession can be one of the smartest investments you make. They’ll keep your records accurate, ensure you maximize deductions, and help you stay compliant with tax laws—all so you can focus on your clients.
  • Use virtual bookkeeping services: If hiring a full-time bookkeeper isn’t feasible, virtual bookkeeping for therapists is a great alternative. Companies like CoCountant specialize in managing finances for therapists, handling everything from invoicing to tax prep. Let the experts handle the details, so you can stay organized and focus on growing your practice.

Also read: How to outsource bookkeeping for your small business

The bottom line

Proper bookkeeping is the backbone of any successful therapy practice. It’s what keeps your finances organized, ensures smooth tax filings, and gives you a clear understanding of where your business stands.

But let’s face it: doubling as a bookkeeper doesn’t make sense—you didn’t become a therapist to balance books or prepare cash flow statements. That’s why you need an expert to handle the bookkeeping.

At  CoCountant, we specialize in HIPAA-compliant bookkeeping for therapists covering all areas of your practice. We streamline your insurance billing, ensure timely payments, and take care of the financial details so you can focus on your clients. Our compliance-first approach maximizes your tax deductions, helping improve your bottom line while keeping you fully compliant.

FAQs

1. What is the best bookkeeping software for therapists?

It really depends on your needs, but some popular options are QuickBooks, Xero, and FreshBooks. These platforms come packed with features like invoicing, expense tracking, and financial reporting—all great tools for keeping your online therapy practice financially healthy.

2. Can I deduct home office expenses as an online therapist?

Absolutely. If you use part of your home exclusively for your therapy practice, you may qualify for tax-deductible expenses for therapists, such as the home office deduction.

That means you might be able to deduct a percentage of your rent or mortgage interest, utilities, and insurance. But definitely check with a tax professional to make sure you’re meeting the IRS requirements.

3. How often should I update my bookkeeping records?

Aim for at least weekly. Regular updates help you stay on top of your cash flow, make better decisions, and avoid any surprises when tax season rolls around. Plus, it just makes your life easier—no last-minute scramble to find receipts!

4. What are the benefits of hiring a professional bookkeeper?

Hiring a pro means you get expertise and peace of mind. A bookkeeper can help you avoid costly errors, make sure you’re staying compliant with tax laws, and give you the financial insights you need to grow your practice. Plus, you can stop stressing about numbers and focus on your clients.

5. How can I manage late payments from clients?

First, make sure you have clear payment policies in place. Send invoices right after sessions and use automated reminders to keep things on track.

If late payments keep happening, you might need to have a straightforward talk with your client or consider adding late fees to your policy.

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Disclaimer

CoCountant assumes no responsibility for actions taken in reliance upon the information contained herein. This resource is to be used for informational purposes only and does not constitute legal, business, or tax advice.  Make sure to consult your personal attorney, business advisor, or tax advisor with respect to believing or acting on the information included or referenced in this post.