7 Things to Know Before You Start a New Optometry Practice
Starting an optometry practice? Learn 7 key tax facts, from entity choice to deductions, to save money and avoid IRS issues.
Starting an optometry practice is exciting, but the tax side can trip you up if you are not prepared. You need to know how to structure your business, what to deduct, and how to handle payroll. Here are 7 things to know before you open your doors, with practical steps you can take this week.
1. Your Business Structure Affects Your Tax Bill
The entity you choose determines how you pay taxes and your personal liability. Most new optometrists choose an LLC or an S-corp. An LLC is simple and flexible, but you pay self-employment tax on all net income (15.3% in 2026). An S-corp lets you pay yourself a reasonable salary and take the rest as distributions, which avoids some self-employment tax, but it requires more paperwork and payroll. A sole proprietorship is easiest but offers no liability protection.
What to do this week: Talk to a CPA or tax attorney. They can run the numbers for your expected income. For most practices earning over $80,000, an S-corp saves money, but the extra costs (payroll, filing) can be $1,500-$3,000 per year.
2. You Must Pay Estimated Taxes Quarterly
The IRS expects you to pay taxes as you earn. If you are self-employed, you need to make estimated tax payments in April, June, September, and January. If you do not, you may face penalties. For a new practice, your first year might have low income, but you still need to pay at least 100% of your prior year’s tax liability (or 90% of current year) to avoid penalties.
What to do this week: Set aside 25-30% of every deposit into a separate savings account. Use Form 1040-ES to calculate your payments. Your CPA can help you set up a system.
3. You Can Deduct Startup Costs, But There Are Limits
The IRS allows you to deduct up to $5,000 in startup costs in your first year, but only if your total startup costs are $50,000 or less. If you spend more, the deduction is reduced dollar-for-dollar. Costs include market research, training, legal fees, and initial marketing. Costs to acquire equipment are not startup costs; they are depreciated over time.
What to do this week: Keep every receipt for expenses before you open. Create a spreadsheet with categories like legal, marketing, and supplies. If you expect to spend over $50,000, plan to amortize the excess over 180 months.
4. Equipment Depreciation Can Be a Big Write-Off
Optometry practices need expensive equipment: phoropters, slit lamps, OCT machines, and edgers. Under Section 179, you can deduct the full cost of qualifying equipment in the year you place it in service, up to a limit ($1,160,000 in 2026). Bonus depreciation allows an additional 80% deduction for new equipment. This can significantly reduce your taxable income in your first year.
What to do this week: List all equipment you plan to buy. Ask your vendor for the date you will take delivery. You must place the equipment in service by December 31 to claim the deduction that year. Plan your purchases accordingly.
5. Inventory: You Can Choose Cash or Accrual Accounting
If you sell glasses and contacts, you have inventory. The IRS allows small businesses (average gross receipts under $27 million) to use cash accounting, which means you deduct inventory when you pay for it, not when you sell it. This can simplify your taxes. But if you use accrual, you match income and expenses more accurately. Most new practices use cash basis because it is easier.
What to do this week: Decide on your accounting method with your CPA. If you use cash, you can deduct the cost of frames and lenses as you buy them, which may lower your taxable income in a high-expense year.
6. Hiring Employees Means Payroll Taxes and Forms
When you hire your first employee, you must register for an EIN, withhold income tax, Social Security, and Medicare, and pay federal unemployment tax (FUTA). You also need to file quarterly Form 941 and provide W-2s at year-end. Payroll services like Gusto or ADP cost $40-$100 per month, but they save you time and prevent errors.
What to do this week: If you plan to hire, set up payroll before your first employee starts. Decide if you will use a service or do it yourself. Remember, you also need to pay state unemployment taxes and possibly workers’ comp.
7. Track Mileage and Home Office Deductions Carefully
If you drive to meet vendors, attend conferences, or deliver glasses, keep a mileage log. The IRS standard mileage rate for 2026 is 67 cents per mile. If you use a home office exclusively for your practice, you can deduct a portion of your rent, utilities, and internet. But the space must be used regularly and exclusively for business.
What to do this week: Start a mileage log today. Use an app like MileIQ or a simple spreadsheet. For your home office, measure the square footage and calculate the percentage of your home used. Keep a floor plan and photos as evidence.
FAQ
Q: When do I need to get an EIN? A: You need an EIN as soon as you form your business, even if you have no employees. You can get one free from the IRS website in minutes.
Q: Can I deduct the cost of my optometry license and continuing education? A: Yes, license fees and CE courses are deductible as business expenses. Keep receipts and track them.
Q: What if I make a mistake on my taxes? A: You can file an amended return (Form 1040X) to correct errors. The IRS also offers penalty relief for first-time filers in some cases. Work with your CPA to fix issues quickly.
Q: How long do I need to keep tax records? A: Keep all tax returns and supporting documents for at least 3 years, but for equipment and property, keep records for as long as you own the asset plus 7 years.
The Bottom Line
Starting an optometry practice is a big step, and taxes are a major part of your business. Know your entity, pay estimated taxes, and track every expense. Use depreciation to your advantage, and set up payroll correctly. The 7 points above give you a solid foundation. This week, meet with a CPA who works with medical practices. They can help you create a tax plan that saves you thousands. Do not wait until tax season; plan now.