Limited Liability Company (LLC)

Your Limited Liability Company (LLC) will be a legal “step-up” from a sole-proprietorship. An LLC  provides protection of personal assets similar to a corporation, yet the one or more “members” or “owners” still possess total operational flexibility and enjoy pass-through tax efficiency.

To form an LLC is pretty easy. Legal professionals can help guide or even complete the process for you, but personal initiative and thorough research can save you money. The U.S. Small Business Administration website, and others such as Nolo.com or How to Start an LLC are great online resources. For the record, this serial will help you get started, but can not substitute for independent research and consultation of a legal professional.

Details will vary widely from state to state, but the LLC formation process is conceptually the same everywhere: Register a name, file some paperwork, pay some money, check for any state-specific requirements, and prepare for annual fees and taxes.

First, make sure your business name is available (Look it up here!). If your name is unique, does not include state-restricted terms such as “bank” or “insurance” (which are organizations usually prohibited from filing as LLCs), but does include the term “LLC” or some variant, then you’re ready to file!

File the formal paperwork, often called the Articles of Organization, and pay any associated filing fee (around $100, but can vary widely by state). You will need to appoint a Registered Agent, which for most music therapy private practices will be you! An RA is the person designated to send and receive papers, such as the annual fees required to keep your LLC active. Your Articles will include basic information about your business, the RA, any additional members if applicable, and the desired effective date of LLC. (Note that this information is made public, so expect some spam mail, and navigate all LLC responsibilities and correspondences with prudence.)

Most states do not require you to develop an LLC Operating Agreement, but California, Delaware, Maine (if more than one member), Missouri, Nebraska, and New York currently do. Regardless of legal necessity, people going into business together should write an operating agreement to discern rights and responsibilities. Further, you are not required to develop a business plan, but a carefully crafted, objective road map to pinpoint short-term action steps and guide the business towards larger, long-term milestones can be a tremendous asset.

What next? Obtain all required licenses or permits, if applicable. Beyond the MT-BC credential (and state licensure or registry if applicable), you may or may not need anything else – do your research here. You may also (but probably not) be required to publish your intent to form an LLC; this is an outdated practice, and other than New York, I’m not sure which states still uphold this step. If needed, newspapers will be happy to take your money to publish your statement of intent to incorporate.

You may want to apply for an Employer Identification Number (EIN) if you’re going to open a dedicated business bank account, host multiple members, or hire employees. An EIN is easy to apply for, free, and assigned quickly. Apply here.

Voila! You’re a business owner! Now that you have filed a little paperwork and spent some of your start-up cash, it’s time to actually serve your community, keep organized records, file taxes on schedule, and grow! To maintain your LLC you will have to file an annual report, which means paying the state another fee every year. I also encourage you to set aside at least 20% of your monthly income to prepare for taxes. Study your state tax obligations here. As your business earns more revenue, you may save money by electing for your LLC to be taxed as an S Corporation. Treated as a corp will mean a little more paperwork, but after paying yourself a reasonable salary, surplus income can be distributed through dividends to reduce the amount subject to self-employment tax. 

The internet and bookstores are full of incredible resources, your familial and social networks may be better guides than you expect, and legal professionals are always available. As you study accounting, learn which expenses are deductible, improve your clinical prowess, boost your business acumen, etc., you will become a stronger clinician, a bolder entrepreneur, and a proud business owner.

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Sole Proprietorship

A sole proprietorship is the easiest and cheapest business entity to own. To begin a music therapy sole proprietorship, just get out there and start providing services. So long as you are an MT-BC meeting any state licensure or permitting requirements, than you’re good to go; if you currently provide therapy sessions, music lessons, or anything else unaffiliated with another business, than you already are a sole proprietor! This is because there is no legal distinction between you as “one natural person” and the business entity. You are the sole (single, as opposed to partnerships) proprietor (“owner” or person with exclusive rights) of your business services. This means you are entitled to all profits, but also burdened with “unlimited responsible” for all debts and liabilities. All business income (or losses) is taxed as your own direct income (or losses), and along with your business expenses, is filed through a Schedule C on your personal tax return (Form 1040). So keep good records and receipts of all money coming in and going out to prepare yourself for income taxes. You would be wise to set money aside (I suggest at least 20%) as soon as you earn it, and be sure to pay the IRS in total by April 15th, or preferably in quarterly estimated filings by the 15th of April, June, September, and January. For more information, see the U.S. Small Business Administration (SBA) and the Internal Revenue Service (IRS) websites. Accountants may provide a free consultation to help you understand these responsibilities, and offer reasonable rates to help you file taxes.

What about a better name? You and the business are a single entity, but you may prefer not to market your personal name. While carefully crafting a business name, check to make sure it isn’t already registered in your state nor trademarked nationally. You may also want to peruse social media and find available URLs before committing to a name. Each state will be a little different, but the brief paperwork and minimal costs of filing a “DBA” (Doing Business As, also known as a fictitious name) are a snap.

For example, Jennifer Sokira was sole-pro for several years: “Before I began CTMTS (Connecticut Music Therapy Services) I was a sole proprietor. I had a regular full-time music therapy job at a school and I didn’t really spend a lot of time thinking about the “after school” clients as a business. I took on some extra clients because I needed extra money. When I was ready to take the next step and leave my full time job, I just opened an LLC to create a separation of filled up my clinical hours via word of mouth. I plugged along for a couple of years with my main focus on music therapy, my clients and being a clinician, but I didn’t spend a great deal of time focusing on my identity as a business owner. This changed as my business grew and my vision for my business expanded, however I’m glad that I focused on my clinical work during those first few years. I needed that time to grow into the role of a business owner. This allowed me to become a good mentor to my employees and to develop a trustworthy reputation as an effective therapist, which is a great asset in growing my company now” (Pizzi & Guy, 2015, p. 23).

Any questions or corrections? Comment below, or e-mail RileyMTBC@gmail.com. This is the second part in a serial about music therapy business legal tax structures. Follow on Twitter @rhythmNreason or check out our website tag “Business Legal Structures.”

BizFilings. (n.d.). When to File a DBA. Retrieved from http://www.bizfilings.com/learn/file-dba.aspx.

IRS. (n.d.). Estimated Taxes. Retrieved from https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estimated-Taxes.

IRS. (n.d.). Form 1040, U.S. Individual Income Tax Return. Retrieved from https://www.irs.gov/uac/About-Form-1040.

IRS. (n.d.). Schedule C (Form 1040), Profit or Loss From Business. Retrieved from https://www.irs.gov/uac/Schedule-C-(Form-1040),-Profit-or-Loss-From-Business.

IRS. (n.d.). Sole Proprietorships. Retrieved from https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Sole-Proprietorships.

Pizzi, M. & Guy, J. (2015). Leading The Way: Music Therapy Businesses of the Future (e-book). Available through the AMTA bookstore at https://netforum.avectra.com/eweb/shopping/shopping.aspx?site=amta2&prd_key=65654da6-2fa6-49ff-8f59-fe5382ba6d69.

SBA. (n.d.). Sole Proprietorship. Retrieved from https://www.sba.gov/content/sole-proprietorship-0.

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Music Therapy Business Structures

When dreaming of and preparing for your own private practice, read everything available and talk to anyone you can about… everything! For this serial, let’s explore which business structure is right for you. Let’s say you want to keep it simple and work under your own name as a sole-proprietor, perhaps filing a “doing business as” (DBA) or fictitious name. If you’re seeking some legal protection and a sense that clients will perceive you as a “legitimate” organization, filing as an Limited Liability Company (LLC) may be a good fit. As your revenue ramps up or if you plan on hiring more employees, perhaps you will file for a C Corporation, or elect to be taxed as an S Corporation. Do you aim to run on donations and/or grants? Consider opening a tax-exempt non-profit organization (NPO).

Stay tuned! The Rhythm & Reason Blog will share basic info on those legal structures most common among Music Therapy businesses using the tag “business legal structures.” Please note that this serial is for educational purposed only, and can not substitute for independent research and consultation of a legal professional.

Internal Revenue Service. (n.d.) Starting a Business. Retrieved from https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Starting-a-Business

U.S. Small Business Administration. (n.d.). Starting & Managing. Retrieved from https://www.sba.gov/category/navigation-structure/starting-managing-business

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SOP 07: Maintaining and Terminating a Treatment Plan

It is important to evaluate a client’s response to their individualized music therapy treatment plan by documenting change and progress. Modifications can be designed as appropriate. When objectives are met, new objectives may be projected to continue progress towards larger goals. Additionally, priorities may altogether change throughout the treatment process. Finally, it is also important to develop a plan for when music therapy services will end. What is the end goal? When have we reached it? How do we maintain such accomplishment? What happens next?

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SOP 06: Implementation of Music Therapy Treatment

“Music therapy interventions may include music improvisation, receptive music listening, song writing, lyric discussion, music and imagery, singing, music performance, learning through music, music combined with other arts, music-assisted relaxation, music-based patient education, electronic music technology, adapted music intervention, and movement to music. Music therapy clinical practice may be in developmental, rehabilitative, habilitative, medical, mental health, preventive, wellness care, or educational areas.” “Music therapists are members of an interdisciplinary team of healthcare, education, and other professionals who work collaboratively to address the needs of clients while protecting client confidentiality and privacy. Music therapists function as independent clinicians within the context of the interdisciplinary team, supporting the treatment goals and co-treating with physicians, nurses, rehabilitative specialists, neurologists, psychologists, psychiatrists, social workers, counselors, behavioral health specialists, physical therapists, occupational therapists, speech-language pathologists, audiologists, educators, clinical case managers, patients, caregivers, and more.”

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SOP 05: Factors Guiding the Treatment Planning Process

Music therapy referrals are based on non-musical needs, such as mental health, behavior modification, academic learning, reality orientation, neurological rehabilitation, or daily living skills. These and many other goals, along with more specific objectives and music therapy strategies, are developed as part of an individualized treatment plan after “systematic, comprehensive, and accurate information” has been collected as part of a thorough music therapy assessment. The individualized treatment plan determines the “appropriateness and type of music therapy services to provide,” and is based on clinical assessment, as well as the best available research, the music therapist’s clinical expertise, and the client’s input. “A music therapist is respectful of, and responsive to the needs, values, and preferences of the client and the family.” Music therapists may collaborate with the primary care provider (PCP) and other professionals to provide integrated care, and will make referrals to other professionals if “faced with issues or situations beyond the original clinician’s own practice competence, or where greater competence or specialty care is determined as necessary or helpful to the client’s condition.”

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SOP 04: Interdisciplinary Cooperation and Distinction

Music therapists are trained to competently, safely, and ethically apply evidence-based music interventions in “developmental, rehabilitative, habilitative, medical, mental health, preventive, wellness care, or educational areas.” Music therapists cannot provide service beyond our Scope of Music Therapy Practice, unless we have earned the additional knowledge, skills, and certification to do so. Similarly, “We acknowledge that other professionals may use music, as appropriate, as long as they are working within their scope.” MT-BCs recognize that there will be overlap in services between different healthcare providers; we encourage mutual respect and collaboration to best serve the client. Treatment should integrate those services each clinician is uniquely trained to provide.

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SOP 03: Important Assumptions for Music Therapy Practice

“The Scope Of Music Therapy Practice (SOP) is based on the values of non-maleficence [doing no harm], beneficence [acting for the benefit of others], ethical practice; professional integrity, respect, excellence; and diversity.” The SOP assumes Music Therapy practice which is: safe, ethical, and within one’s skill set; based on the best available research, client-centered care, and clinical expertise; and engaged with interdisciplinary collaboration.

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SOP 02: What is Music Therapy? What is a Music Therapist?

Music therapy is defined as the clinical and evidence-based use of music interventions to accomplish individualized goals for people of all ages and ability levels within a therapeutic relationship by a credentialed professional who has completed an approved music therapy program.” A music therapist is defined as, “an individual who has completed the education and clinical training requirements established by the American Music Therapy Association (AMTA) and who holds current board certification from The Certification Board for Music Therapists (CBMT).”

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SOP 01: Why is the 2015 Scope of Music Therapy Practice (SOP) Important?

The Scope of Music Therapy Practice (SOP) serves Music Therapists, other health and education professionals, government officials, clients, and the general public by articulating the range of responsibilities of a fully qualified Music Therapist – Board Certified (MT-BC). The SOP defines Music Therapy, explains our values which MT practice is based upon, pinpoints responsibilities which distinguish a Music Therapist, explains the potential for harm if un-credentialed persons provide clinical services, discerns AMTA from CBMT, and clarifies the requisite education, clinical training, board certification, and continuing education required to earn the credentials Music Therapist – Board Certified (MT-BC).

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