The Annual New Functional Medicine Practice Review Checklist
A practical, step-by-step checklist for new functional medicine practices to review taxes, finances, and compliance annually. Includes deadlines, deductions, and action items.
Running a functional medicine practice means you wear many hats, and the business hat often feels the heaviest, especially when it comes to taxes. For new practices, the annual review is not just about filing a return; it’s about catching mistakes, maximizing deductions, and building a financial foundation that supports growth. This checklist walks you through the essential tax and financial review tasks, with concrete steps you can take this week.
1. Confirm Your Business Structure and Tax Deadlines
Your business structure (LLC, S-Corp, C-Corp, or sole proprietorship) determines your tax forms and deadlines. If you haven’t revisited this since you opened, do it now. For 2026, the key deadlines are:
- March 15, 2026: S-Corp and partnership tax returns (Form 1120-S, Form 1065)
- April 15, 2026: Sole proprietors and single-member LLCs (Schedule C) and C-Corps (Form 1120)
- Quarterly estimated tax payments: Due April 15, June 15, September 15, and January 15, 2027
If you missed any estimated payments, you may face penalties. The IRS penalty for underpayment is around 0.5% of the unpaid amount per month, so it’s worth calculating now.
Action this week: Pull your formation documents and confirm your structure. If you’re an S-Corp, ensure you’re paying yourself a “reasonable salary” (for functional medicine practitioners, that often ranges $80,000-$120,000, depending on your region and hours).
2. Reconcile Your Books and Bank Accounts
Before you can review taxes, your books must be accurate. Many new practices fall behind on bookkeeping, especially if you’re using cash basis accounting. Reconcile every bank and credit card account for the year. This means matching every transaction in your accounting software (QuickBooks, Xero, or even a spreadsheet) to your actual statements.
Why it matters: Unreconciled books lead to missed deductions or overstated income. For example, if you paid for lab supplies with a personal card and didn’t record it, you lose that deduction.
Action this week: Set aside 2-3 hours to reconcile your last three months. If you’re behind, prioritize the most recent quarter. Use your accounting software’s reconciliation tool; it will flag discrepancies.
3. Maximize Deductions Specific to Functional Medicine
Functional medicine practices have unique deductible expenses. Here’s a checklist of common ones, with realistic 2026 ranges:
| Expense Category | Examples | Typical Annual Range |
|---|---|---|
| Lab testing and supplies | Blood panels, stool tests, saliva kits | $5,000-$15,000 |
| Continuing education | IFM courses, conferences, certifications | $2,000-$8,000 |
| Software and EHR | Practice management, patient portal, telehealth | $3,000-$6,000 |
| Marketing | Website, SEO, social media ads | $4,000-$12,000 |
| Office rent and utilities | If you have a dedicated space | $12,000-$30,000 |
| Malpractice insurance | Professional liability | $3,000-$7,000 |
Don’t forget: If you use a home office, the simplified method allows $5 per square foot, up to 300 square feet, for a maximum deduction of $1,500. But if your practice is your primary place of business, you may qualify for the regular method, which could yield more.
Action this week: Create a list of all your business expenses for the year. Categorize them using the table above. If you’re missing receipts, request copies from vendors now.
4. Review Retirement Plan Contributions
Retirement plans are a powerful tax shelter for practice owners. For 2026, the contribution limits are:
- Solo 401(k): Up to $23,500 in employee deferrals (plus $7,500 catch-up if you’re 50+), and up to 25% of net self-employment income as employer contribution. Total combined limit is $70,000 (or $77,500 with catch-up).
- SEP IRA: Up to 25% of net earnings, capped at $70,000.
- SIMPLE IRA: Up to $16,000 in employee deferrals, plus employer match.
If you haven’t set up a plan, you can still do so for 2025 if you act before the tax filing deadline (including extensions). For 2026, set up a plan now to start contributing.
Action this week: If you don’t have a retirement plan, contact a financial advisor or use an online provider like Vanguard or Fidelity to open a Solo 401(k). If you have one, confirm your contributions are on track.
5. Assess Your Quarterly Estimated Tax Payments
New practices often underestimate their tax liability, leading to a surprise bill in April. Review your 2025 tax return (if filed) or your profit-and-loss statement to estimate your 2026 liability. The IRS safe harbor rule: you must pay at least 100% of your previous year’s tax liability (110% if your adjusted gross income was over $150,000) to avoid penalties.
Action this week: Calculate your current year-to-date net income. Multiply by your effective tax rate (federal plus state, typically 25%-35% for a small business owner). Divide by the number of quarters remaining, and adjust your next estimated payment accordingly.
6. Check for State and Local Tax Obligations
Federal taxes get the most attention, but state and local taxes can be just as significant. Depending on your state, you may have:
- State income tax (ranges from 0% in Texas to 13.3% in California)
- Sales tax on retail products (supplements, lab kits) if you sell them
- Franchise tax or business privilege tax (common in states like Texas and Delaware)
Action this week: Visit your state’s department of revenue website. Search for “small business tax obligations” and note any filing deadlines. If you sell supplements, confirm whether you’re registered to collect sales tax.
7. Organize Your Records for Your Accountant
If you work with an accountant, a well-organized file saves you money (accountants charge by the hour, often $150-$400/hour). Create a folder structure with:
- Income statements (all 1099s, merchant statements)
- Expense receipts (organized by category)
- Mileage log (if you drive for business, you can deduct $0.67 per mile in 2026)
- Prior year tax returns
- Bank and credit card statements
Action this week: Set up a digital folder (Google Drive or Dropbox) with subfolders for each category. Scan any paper receipts and upload them. This takes 1-2 hours but saves you stress later.
FAQ
Q: What if I missed the March 15 S-Corp deadline? A: File as soon as possible. The penalty for late filing is $220 per month per shareholder, up to 12 months. If you have a reasonable cause, you can request a waiver using Form 1120-S with a statement.
Q: Can I deduct my functional medicine certification costs? A: Yes, if the certification maintains or improves skills required in your practice. IFM’s certification program, for example, is deductible as continuing education. Keep all receipts and course materials.
Q: How do I handle cash payments from patients? A: You must report all income, including cash. Use a point-of-sale system that logs cash transactions, and deposit them into your business account. Underreporting cash is a common audit trigger.
Q: Should I hire a tax professional or use software? A: For a new practice, software like TurboTax Self-Employed ($120-$200) works if your finances are simple. But if you have employees, an S-Corp, or multi-state operations, invest in a CPA ($500-$2,000 for a business return). The cost is deductible.
Related guides
- The Complete New Functional Medicine Practice Startup Checklist
- 7 Mistakes New Functional Medicine Practices Make in Their First Year
- 7 Questions to Ask Before Buying a New Functional Medicine Practice
The bottom line
An annual tax review is not a luxury; it’s a necessity for a new functional medicine practice. By following this checklist, you’ll catch errors, reduce your tax bill, and avoid penalties. Start with the actions marked “this week” and schedule a half-day in the next month to complete the full review. Your future self, and your accountant, will thank you.