New Ot Practice Buyer's Guide: What to Look For
A practical guide for new occupational therapy practice owners on what to look for when buying or starting a practice, with a focus on tax considerations and cost comparisons.
Starting or buying an occupational therapy (OT) practice is a major financial decision. Beyond the clinical side, you need to understand the tax implications and the true costs involved. This guide walks you through what to look for, comparing common purchase options and highlighting tax factors that can save or cost you money.
Key Tax Considerations for New OT Practices
When you buy or start an OT practice, your tax structure affects everything from quarterly payments to deductions. Here are the main areas to evaluate:
- Business structure: Sole proprietorship, LLC, S-corp, or C-corp. Each has different tax treatment. For most small OT practices, an LLC or S-corp is common, but consult a CPA.
- Asset vs. stock purchase: If buying an existing practice, an asset purchase lets you depreciate equipment and deduct certain expenses. A stock purchase is simpler but may carry hidden tax liabilities.
- Employee vs. contractor: Misclassifying therapists as contractors can trigger IRS penalties. Know the rules.
- Deductible expenses: Rent, equipment, software, marketing, continuing education, and health insurance are often deductible. Keep receipts.
- Quarterly estimated taxes: You’ll likely need to pay quarterly. Underpaying can result in penalties.
Comparing Purchase Options: New vs. Existing vs. Franchise
When starting an OT practice, you have three main routes. Each has different upfront costs, tax implications, and ongoing expenses.
| Option | Upfront Cost Range | Monthly Overhead Range | Tax Advantages | Key Risks |
|---|---|---|---|---|
| Start from scratch | $10,000-$50,000 | $5,000-$15,000 | Full control over deductions; can choose structure | No existing client base; longer ramp-up |
| Buy existing practice | $50,000-$300,000+ | $8,000-$20,000 | Depreciation on assets; possible goodwill amortization | Hidden liabilities; client retention issues |
| Franchise | $30,000-$150,000 | $10,000-$25,000 | Franchise fees may be amortized | Royalty fees; less flexibility |
Note: Figures are estimates for 2026 based on industry data. Actual costs vary by location and size.
Starting from Scratch
This gives you maximum control. You can choose your entity type (LLC or S-corp) and deduct startup costs up to $5,000 in your first year (with phase-out above $50,000). You’ll need to register for an EIN, open a business bank account, and set up accounting software. Expect to spend $10,000-$50,000 on licensing, equipment, and initial marketing.
Buying an Existing Practice
An asset purchase is often better for taxes because you can allocate the price to tangible assets (depreciable) and intangible assets like goodwill (amortizable over 15 years). However, you must verify the seller’s tax history. Request three years of tax returns and check for unpaid payroll taxes. A CPA can help you structure the deal to maximize deductions.
Franchise
Franchises offer brand recognition and training, but you’ll pay an initial fee and ongoing royalties (often 5-10% of revenue). Franchise fees can be amortized over 15 years. However, you have less control over expenses, and the franchise agreement may limit your ability to claim certain deductions.
Practical Steps to Take This Week
- Meet with a CPA who specializes in healthcare practices. Ask about entity selection and tax planning. Cost: $200-$500 for a consultation.
- Review your business plan with tax implications in mind. Estimate your first-year revenue and expenses.
- Set up a separate business bank account and credit card. This simplifies tracking deductions.
- Choose accounting software like QuickBooks or Xero. Cost: $30-$80/month.
- If buying an existing practice, request a due diligence checklist from your CPA, including tax returns, payroll records, and contracts.
- Research state licensing requirements for OT practices. Fees vary from $100-$500.
FAQ
Q: Can I deduct the cost of buying a practice? A: Yes, but not all at once. The purchase price is allocated to assets (depreciated) and goodwill (amortized over 15 years). You can deduct certain transaction costs, like legal fees, in the year of purchase.
Q: What is the best business structure for a new OT practice? A: An LLC or S-corp is common. An LLC offers flexibility and pass-through taxation, while an S-corp can save on self-employment taxes if you pay yourself a reasonable salary. Consult a CPA for your specific situation.
Q: How do I avoid IRS penalties for quarterly taxes? A: Estimate your annual tax liability and pay at least 90% of it in quarterly installments. Use Form 1040-ES. Your CPA can help you calculate safe harbor amounts.
Q: Are therapy equipment purchases deductible? A: Yes, under Section 179 you can deduct up to $1,160,000 (2026 limit) for equipment placed in service this year, subject to phase-out. This can significantly reduce your taxable income.
The Bottom Line
Buying or starting an OT practice requires careful tax planning. Compare your options, understand the costs, and work with a CPA to structure your purchase for maximum deductions. Take the steps above this week to set a solid foundation. The right choices now can save you thousands in taxes and help your practice thrive.