7 Things to Know Before You Start a New Aba Practice

2026-08-21

Learn the 7 tax essentials for starting an ABA practice in 2026: entity choice, deductions, payroll, sales tax, and more. Practical steps included.

Starting an ABA (Applied Behavior Analysis) practice is exciting, but the tax side can trip you up if you’re not prepared. Before you open your doors, here are 7 things you need to know about taxes for your new ABA practice in 2026. This is not legal or tax advice, but a practical guide to get you started.

1. Choose the Right Business Entity for Tax Purposes

Your entity choice affects how you pay taxes, your liability, and your ability to deduct expenses. For most new ABA practices, an LLC (Limited Liability Company) is the default, but you have options:

Sole Proprietorship: Simplest, but you’re personally liable and pay self-employment tax on all profits. Not recommended if you have employees or significant assets.
LLC (Single-Member or Multi-Member): Offers liability protection. By default, single-member LLCs are taxed as sole proprietorships, and multi-member LLCs as partnerships. You can elect to be taxed as an S-Corp.
S-Corp: Can save you money on self-employment taxes. You pay yourself a reasonable salary (subject to payroll taxes) and take the rest as distributions, which are not subject to self-employment tax. However, you must file Form 2553 and meet deadlines (within 75 days of formation).
C-Corp: Rare for small ABA practices due to double taxation, but may be useful if you plan to raise venture capital.

Practical step this week: Consult a CPA or tax attorney to decide. Ask about the S-Corp election if you expect profits above $40,000-$50,000 annually.

2. Understand Your Tax Obligations as an Employer

If you hire employees (BCBAs, RBTs, admin staff), you’re responsible for payroll taxes. This includes:

Federal income tax withholding from employee wages.
Social Security and Medicare (FICA) taxes: You and each employee each pay 7.65% (6.2% Social Security + 1.45% Medicare) on wages up to the Social Security wage base ($168,600 in 2026).
Federal unemployment tax (FUTA): You pay 6% on the first $7,000 of each employee’s wages, but you get a credit for state unemployment taxes, often reducing it to 0.6%.
State payroll taxes: Varies by state; includes state income tax withholding and state unemployment insurance.

You must register for an Employer Identification Number (EIN) with the IRS, even if you’re a sole proprietor with no employees (you need it for business bank accounts and tax filings).

Practical step this week: Set up payroll with a provider like Gusto or ADP. Costs range from $40-$100/month plus per-employee fees ($6-$12 per employee).

3. Know Your Deductions: What You Can Write Off

ABA practices have specific deductible expenses. Common ones include:

Clinical supplies: Assessment tools, data collection software, reinforcers (toys, snacks), and safety equipment.
Software subscriptions: Practice management, EHR, scheduling, and billing software (e.g., CentralReach, Catalyst, ABA Wizard).
Professional development: CEUs, conferences, and training materials for you and staff.
Rent and utilities for your office or clinic space.
Insurance: Professional liability, general liability, and workers’ compensation (if required).
Marketing: Website, SEO, print materials, and online ads.
Vehicle expenses: If you travel to clients’ homes or schools, you can deduct mileage at the IRS standard rate (67 cents per mile in 2026) or actual expenses.

Keep meticulous records: receipts, bank statements, and a log for mileage. Use accounting software like QuickBooks or Xero to track everything.

Practical step this week: Set up a separate business bank account and credit card. Use them exclusively for business expenses to simplify tracking.

4. Sales Tax: Do You Charge It?

Most ABA therapy services are exempt from sales tax because they are medical or healthcare services. However, this varies by state. For example:

In California, healthcare services are generally exempt.
In Texas, medical services are exempt, but you may need to charge sales tax on tangible goods you sell (like parent training kits).
In New York, similar exemptions apply.

Check your state’s Department of Revenue website or consult a tax professional. If you sell products (e.g., sensory items, books), you may need a sales tax permit.

Practical step this week: Look up your state’s sales tax rules for healthcare services. If unsure, call your state’s tax agency.

5. Quarterly Estimated Taxes: Don’t Skip Them

As a business owner, you’re responsible for paying taxes throughout the year. If you expect to owe more than $1,000 in federal taxes, you must make quarterly estimated tax payments (Form 1040-ES). Deadlines are typically April 15, June 15, September 15, and January 15. Underpayment can result in penalties.

Calculate your estimated tax based on your projected income, deductions, and credits. Many new practices underestimate their profits, leading to surprise tax bills.

Practical step this week: Work with your accountant to estimate your 2026 tax liability. Set aside 25-30% of your net income in a separate savings account for taxes.

6. Track Your Startup Costs Carefully

Startup costs (expenses before you officially open) are deductible, but there are limits. In 2026, you can deduct up to $5,000 in startup costs in your first year, but the deduction is reduced if your total startup costs exceed $50,000. The remainder is amortized over 180 months.

Startup costs include:

Market research
Legal and accounting fees
Training for staff before opening
Rent and utilities before opening
Office equipment (if under $2,500 per item, you can deduct immediately under Section 179)

Keep a separate ledger for these costs.

Practical step this week: Create a spreadsheet to log all pre-opening expenses with dates and receipts.

7. Plan for the IRS’s Scrutiny of Independent Contractors

Many ABA practices hire RBTs or BCBAs as independent contractors to save on payroll taxes. However, the IRS and states are cracking down on misclassification. To classify someone as an independent contractor, you must control only the result, not how they do the work. If you provide training, set schedules, or require them to use your software, they may be employees.

Misclassification can lead to back taxes, penalties, and interest. In 2026, the IRS has increased audits in this area.

Practical step this week: Review your hiring plans. If you’re unsure, consult an employment attorney. Consider using a PEO (Professional Employer Organization) to handle payroll and compliance, costing around 3-8% of payroll.

FAQ

Q: Do I need to charge sales tax on ABA therapy sessions? A: In most states, healthcare services are exempt. Check your state’s rules. If you sell physical products, you may need to charge sales tax.

Q: Can I deduct my home office if I run my ABA practice from home? A: Yes, if you use a dedicated space exclusively for business. Use the simplified method ($5 per square foot, up to 300 square feet) or actual expenses.

Q: What’s the best way to pay myself as an S-Corp owner? A: Pay yourself a reasonable salary (e.g., $60,000-$80,000 for a BCBA) and take additional profits as distributions. This saves on self-employment tax.

Q: When do I need to register for state taxes? A: Register for state income tax withholding and unemployment insurance as soon as you hire your first employee. Also, get a state tax ID if you need to collect sales tax.

The bottom line

Starting an ABA practice involves more than clinical expertise; it requires solid tax planning. Choose your entity wisely, understand payroll obligations, track deductions, and stay compliant with sales tax and contractor rules. Take these 7 steps now, and you’ll avoid costly surprises come tax season. Always consult a tax professional for advice tailored to your situation.

This article is for informational purposes and does not constitute tax or legal advice. Consult a qualified professional.