7 Mistakes New Aba Practices Make in Their First Year

2026-08-21

Avoid costly tax errors in your first year of ABA practice. Learn the 7 most common mistakes and how to fix them with practical, concrete steps.

Starting an ABA practice is exciting, but the first year is also when tax mistakes can cost you thousands. Many new owners focus on clinical care and forget the business side, especially taxes. Here are the 7 most common tax mistakes new ABA practices make, and how to avoid them.

1. Misclassifying Employees as Independent Contractors

One of the biggest mistakes is treating therapists and RBTs as 1099 contractors when they should be W-2 employees. The IRS uses a 20-factor test to determine worker status. If you control the schedule, provide training, and supply materials, they are likely employees.

The cost: Back taxes, penalties, and interest can easily reach $10,000-$30,000 per misclassified worker. Plus, you may owe state unemployment and workers’ comp.

What to do this week: Review your current worker agreements. If you have any 1099 therapists, run them through the IRS test. When in doubt, file Form SS-8 with the IRS for a determination. Better yet, consult a tax professional who knows ABA.

2. Ignoring Quarterly Estimated Tax Payments

As a business owner, you must pay taxes quarterly, not just at year-end. If you don’t, the IRS charges penalties and interest on underpayment. Many new owners miss this because they were previously W-2 employees with withholding.

The cost: The underpayment penalty is about 0.5% of the unpaid amount per month, plus interest. On a $20,000 underpayment, that’s $100 per month in penalties alone.

What to do this week: Estimate your annual income and tax liability. Use IRS Form 1040-ES to calculate quarterly payments. Due dates are April 15, June 15, September 15, and January 15. Set aside 25-30% of your revenue in a separate bank account for taxes.

3. Not Tracking Mileage and Other Deductible Expenses

ABA therapists often travel to clients’ homes or schools. That mileage is deductible, but only if you track it. The IRS standard mileage rate for 2026 is $0.70 per mile. If you drive 1,000 miles per month for work, that’s $700 per month in deductions, or $8,400 per year.

The cost: Missing deductions means paying more tax. Without tracking, you lose thousands in legitimate write-offs.

What to do this week: Start a mileage log today. Use an app like MileIQ or QuickBooks Self-Employed. Record every trip for work, including date, miles, and purpose. Also, track other expenses: office supplies, software subscriptions, professional liability insurance, and continuing education.

4. Mixing Personal and Business Finances

Using the same bank account for personal and business expenses creates a bookkeeping nightmare. It also makes you more vulnerable to an audit. The IRS expects clear separation.

The cost: An audit can cost $5,000-$20,000 in accounting fees, plus potential back taxes and penalties. Even without an audit, you’ll overpay your accountant to sort through the mess.

What to do this week: Open a separate business checking account and credit card. Use them exclusively for business transactions. If you’ve already mixed funds, start fresh today. Going forward, pay yourself a salary or draw from the business account, and keep personal expenses out.

5. Overlooking the Home Office Deduction

If you run your ABA practice from home, you may qualify for the home office deduction. The IRS allows a simplified method: $5 per square foot, up to 300 square feet, for a maximum of $1,500 per year. Or you can use the actual expense method.

The cost: Missing this deduction means paying more tax. For many new owners, it’s $1,500 or more in lost savings.

What to do this week: Measure your home office space. Ensure it’s used exclusively and regularly for business. If you’re a sole proprietor, use Form 8829 to claim the deduction. If you’re an S-corp or LLC, you may need to set up a formal home office policy. Check with your CPA.

6. Failing to Pay Payroll Taxes Correctly

If you have employees, you must withhold federal income tax, Social Security, and Medicare, and pay your share of payroll taxes. You must also file quarterly payroll tax returns (Form 941). Many new owners miss deadlines or calculate incorrectly.

The cost: The IRS imposes a trust fund recovery penalty of 100% of unpaid payroll taxes, which can be assessed personally against you. That means you could lose your personal assets.

What to do this week: Use a payroll service like Gusto or ADP. They handle calculations, filings, and payments. If you’re doing it manually, set calendar reminders for all deadlines. Never borrow from payroll tax withholdings to cover other expenses.

7. Not Planning for State and Local Taxes

Federal taxes are only part of the picture. Your state may have income tax, sales tax, or franchise tax. Some states, like Texas, have no income tax, but they have franchise tax. Also, ABA services may be subject to sales tax in some states, depending on whether they’re considered medical.

The cost: State penalties can be just as harsh as federal. For example, California charges 25% of the unpaid tax as a penalty for failure to file.

What to do this week: Research your state’s tax requirements. Visit your state’s department of revenue website. Determine if you need a sales tax permit. If you’re unsure, hire a local CPA who knows ABA practices in your state.

FAQ

Q: Can I deduct the cost of my ABA software subscription? A: Yes, software subscriptions like practice management or billing software are fully deductible as business expenses. Keep receipts and track them in your bookkeeping.

Q: What if I made a mistake on my quarterly estimated payments? A: You can adjust your next payment. The IRS allows you to annualize your income, which means you can base payments on actual income to date. If you underpaid, pay more next quarter to minimize penalties.

Q: Should I form an S-corp to save on taxes? A: An S-corp can save you on self-employment taxes, but it adds complexity and payroll requirements. For many new ABA practices, an LLC taxed as a sole proprietorship is simpler. Talk to a CPA to see if the savings justify the cost.

Q: How long should I keep tax records? A: Keep all tax returns and supporting documents for at least 7 years. This includes receipts, mileage logs, bank statements, and payroll records. If you ever need to amend a return or face an audit, you’ll have the evidence.

The bottom line

Your first year in ABA is about building a solid foundation. Avoiding these 7 tax mistakes will save you money, stress, and potential legal trouble. Start with the basics: separate your finances, track your expenses, and pay your taxes on time. If you’re overwhelmed, invest in a good accountant or bookkeeper. The $200-$500 per month you spend on professional help is far less than the cost of a mistake. Take one action this week, and you’ll be ahead of most new owners.