7 Mistakes New Midwifery Practices Make in Their First Year
Avoid costly tax errors in your first year of midwifery practice. Learn the 7 most common mistakes and how to fix them now.
Starting a midwifery practice is exciting, but the first year brings a steep learning curve, especially around taxes. Many new practitioners make avoidable mistakes that cost them money, time, and stress. Here are the 7 most common tax mistakes new midwifery practices make, and how to avoid them.
1. Choosing the Wrong Business Structure
Many midwives start as sole proprietors without realizing the tax implications. As a sole proprietor, you pay self-employment tax (15.3% in 2026) on all net earnings, and you have unlimited personal liability. An LLC or S-corp can offer liability protection and potential tax savings, but they come with additional costs and paperwork.
What to do: Consult a CPA or tax professional before you start seeing clients. Compare the costs of formation, annual fees, and tax preparation. For many solo midwives, an LLC with S-corp election can save thousands in self-employment tax once your net income exceeds $40,000 to $50,000 per year. If you’re just starting and expect lower income, a sole proprietorship or simple LLC may be sufficient initially. Reassess annually.
2. Mixing Personal and Business Expenses
Using the same bank account and credit card for personal and business purchases is a recipe for tax headaches. It makes it nearly impossible to track deductible expenses accurately, and it raises red flags if you’re audited. The IRS expects clear separation.
What to do: Open a dedicated business checking account and a business credit card. Use them exclusively for practice expenses. If you use your personal car for home visits, keep a mileage log (apps like MileIQ or QuickBooks Self-Employed can automate this). Track every expense, no matter how small. This habit will save you hours at tax time and ensure you claim every deduction you’re entitled to.
3. Misclassifying Employees vs. Independent Contractors
Midwifery practices often hire birth assistants, lactation consultants, or administrative help. Misclassifying an employee as an independent contractor can lead to back taxes, penalties, and interest. The IRS uses a 20-factor test to determine worker status, focusing on behavioral control, financial control, and the nature of the relationship.
What to do: If you control when, where, and how the worker performs their job, they are likely an employee. When in doubt, file Form SS-8 with the IRS for a determination. Also, check your state’s rules, as some are stricter than federal. If you do have employees, you must withhold payroll taxes and pay unemployment tax. Consider using a payroll service like Gusto or ADP, which costs $40 to $80 per month plus per-employee fees.
4. Ignoring Quarterly Estimated Taxes
New practice owners often forget that taxes are pay-as-you-go. If you expect to owe more than $1,000 in taxes for the year, you must make quarterly estimated tax payments. Failure to do so can result in penalties and interest, even if you pay all your taxes by April 15.
What to do: Estimate your annual income and calculate your quarterly payments. Use Form 1040-ES or work with your accountant. A common rule of thumb: set aside 25% to 30% of your net income for federal taxes, plus state taxes if applicable. Pay by the due dates: April 15, June 15, September 15, and January 15. Automate these payments to avoid missing deadlines.
5. Overlooking Home Office and Mileage Deductions
If you use a space in your home exclusively for administrative work (scheduling, charting, billing), you may qualify for the home office deduction. Many midwives skip this because they think it’s complicated or risky. But the simplified method allows $5 per square foot, up to 300 square feet, giving you a deduction of up to $1,500 without detailed records.
What to do: If you use a home office regularly and exclusively, take the deduction. For mileage, track every trip for business: home visits, hospital rounds, meetings, and supply runs. The 2026 IRS mileage rate is 67 cents per mile. A simple log or app can easily capture 500 to 1,000 miles per month, which adds up to $4,000 to $8,000 in deductions annually.
6. Not Tracking Supplies and Equipment Properly
Midwifery practices purchase a lot of supplies: birth kits, dopplers, scales, and more. Some items are small and can be expensed immediately, while larger equipment must be depreciated over time. Failing to track these purchases correctly can lead to missed deductions or incorrect depreciation.
What to do: Keep receipts for all supplies and equipment. For items under $2,500, you can generally expense them in the year of purchase using Section 179 or de minimis safe harbor. For larger items, like a fetal monitor or birthing tub, you may need to depreciate them over 5 to 7 years. Your accountant can help you decide. Use accounting software like QuickBooks to categorize expenses and run profit-and-loss reports.
7. Waiting Until April to Think About Taxes
Procrastination is the biggest mistake. If you wait until tax season, you’ll be scrambling to gather receipts, reconcile accounts, and meet deadlines. This leads to errors, missed deductions, and unnecessary stress.
What to do: Set up a system now. Use accounting software to track income and expenses in real time. Schedule a quarterly review with your accountant to review your numbers and adjust estimated payments. Keep all receipts in a digital folder (scan or photograph them). By staying on top of your finances year-round, you’ll avoid surprises and make informed decisions.
FAQ
Q: Do I need to charge sales tax on midwifery services? A: It depends on your state. Most states do not tax medical services, but some may tax certain products like supplements or birth kits. Check with your state’s department of revenue or your accountant.
Q: Can I deduct my continuing education expenses? A: Yes, costs for workshops, conferences, and certification courses that maintain or improve your skills are deductible as business expenses. This includes travel, lodging, and registration fees.
Q: What if I don’t make a profit in my first year? A: That’s common. The IRS allows you to deduct business losses against other income, but you must have a profit motive. Be prepared to show a business plan and efforts to make a profit. If you have losses for 3 of 5 years, the IRS may question your hobby status.
Q: Should I hire a tax professional? A: Yes, especially in your first year. A CPA or enrolled agent who works with healthcare providers can save you money and prevent costly mistakes. Fees range from $300 to $1,000 for a simple return, but the peace of mind is worth it.
The Bottom Line
Your first year as a midwifery practice owner is about building your business, but tax mistakes can undermine your success. By choosing the right structure, separating finances, classifying workers correctly, paying estimated taxes, and tracking deductions, you’ll set a solid foundation. Don’t wait until tax season: take action this week to review your setup and consult a professional. A little effort now can save you thousands and countless headaches later.