How Much Should a New Optometry Practice Set Aside for Taxes?
Learn how much new optometry practices should set aside for taxes, including federal, state, and self-employment rates, plus practical steps to avoid surprises.
Starting an optometry practice brings many financial questions, and taxes are among the most critical. The short answer: plan to set aside 25% to 35% of your net income for taxes. This range covers federal income tax, self-employment tax, and state taxes. But the exact amount depends on your business structure, location, and profitability. Below, we break down the numbers and give you concrete steps to stay ahead.
Understand Your Tax Obligations
As a new optometry practice, you’ll face several tax layers. If you’re a sole proprietor or single-member LLC, you pay self-employment tax (Social Security and Medicare) plus federal income tax. If you’re an S-corp or C-corp, your salary is subject to payroll taxes, and profits may be taxed differently. Most new optometrists start as sole proprietors or LLCs, so we’ll focus on those.
Federal Income Tax
Federal income tax is progressive. For 2026, the brackets for single filers are:
- 10% on income up to $11,600
- 12% on income $11,601 to $47,150
- 22% on income $47,151 to $100,525
- 24% on income $100,526 to $191,950
- 32% on income $191,951 to $243,725
- 35% on income $243,726 to $609,350
- 37% on income over $609,350
For married filing jointly, the brackets are roughly double. Your effective rate will be lower than your top bracket, but plan for a marginal rate of 22% to 24% if your practice nets $80,000 to $150,000.
Self-Employment Tax
Self-employment tax is 15.3% (12.4% for Social Security, 2.9% for Medicare) on your net earnings. You can deduct the employer-equivalent portion (half) when calculating adjusted gross income, but you still pay the full amount. This is on top of income tax.
State Taxes
State income tax varies. Nine states have no income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming). Others range from a flat 2.9% (Pennsylvania) to 13.3% (California top bracket). Check your state’s rate and factor it in.
Calculate Your Set-Aside Percentage
To estimate your total tax rate, add your federal income tax rate, self-employment tax, and state tax. For a practice netting $100,000 in a state with a 5% income tax:
- Federal income tax (effective rate around 15% for single, 13% for married) = $15,000
- Self-employment tax = $15,300
- State tax = $5,000
- Total = $35,300, or 35.3% of net income
If you’re married and net $80,000, your effective federal rate might be 10%, so total would be around 25% to 28%. Thus, the 25% to 35% range is realistic. For safety, start at 30% and adjust quarterly.
Set Up a Separate Tax Savings Account
Open a dedicated business savings account for taxes. Many banks offer high-yield savings accounts with rates around 4% to 5% APY in 2026. Transfer a percentage of every deposit into this account. For example, if you receive a $2,000 payment from a patient, move $600 (30%) to your tax account. Automate this with a standing transfer or use accounting software like QuickBooks to categorize and set aside.
Make Estimated Quarterly Payments
The IRS requires quarterly estimated tax payments if you expect to owe more than $1,000. Deadlines are typically April 15, June 15, September 15, and January 15. Use Form 1040-ES. To calculate, estimate your annual net income, apply your tax rate, and divide by four. If you miss a payment, you may face penalties, so set calendar reminders.
Track Expenses to Reduce Taxable Income
Every deductible expense lowers your tax bill. Common deductions for optometry practices include:
- Equipment and furniture depreciation (e.g., phoropter, slit lamp, exam chairs)
- Rent and utilities
- Staff salaries and benefits
- Marketing and advertising
- Professional liability insurance
- Continuing education and license fees
- Software subscriptions (e.g., practice management, EHR)
- Office supplies and patient education materials
Keep receipts and use accounting software to categorize expenses. A good rule: if it’s ordinary and necessary for your practice, it’s deductible. Consult a CPA to maximize deductions.
Work with a Tax Professional
A CPA who specializes in medical or dental practices can save you more than their fee. They’ll help with entity selection, quarterly planning, and deductions. Fees range from $300 to $800 for a basic return, or $150 to $300 per hour for ongoing advice. For a new practice, invest in a CPA for the first year to set up proper systems.
Use a Tax Calculator for Precision
Online tax calculators can give you a personalized estimate. The IRS Tax Withholding Estimator is free, and many accounting sites offer small business calculators. Input your projected net income, filing status, and state to get a percentage. Revisit quarterly as your income changes.
Common Mistakes to Avoid
- Not setting aside anything: Many new owners spend all revenue, then face a huge tax bill. Always transfer funds first.
- Ignoring quarterly payments: Penalties add up. Even if you can’t pay the full amount, pay something to reduce interest.
- Mixing personal and business expenses: This complicates bookkeeping and can trigger audits. Use separate accounts and credit cards.
- Forgetting payroll taxes: If you have employees, you must withhold and pay payroll taxes. These are separate from your personal taxes.
FAQ
What if I don’t make a profit in the first year?
If you have no net income, you may owe no income tax, but you still must file. Self-employment tax applies only to net earnings, so if you break even or lose money, you owe zero. However, you may need to pay minimum state taxes or franchise fees depending on your state.
Can I pay taxes with a credit card?
Yes, the IRS allows credit card payments, but they charge a convenience fee (around 1.85% to 2% of the amount). This might be useful for short-term cash flow, but the fee adds up. Better to use a bank account or direct pay.
How do I handle sales tax on eyeglasses and contacts?
Sales tax rules vary by state. Some states tax eyewear, others exempt it. Check your state’s department of revenue. You’ll need to collect and remit sales tax if applicable. This is separate from income tax.
Should I incorporate to save on taxes?
An S-corp can reduce self-employment tax by allowing you to take a reasonable salary and distributions. But it adds administrative costs (payroll, filings). For a new practice earning under $100,000, the savings may not justify the complexity. Consult a CPA.
The Bottom Line
Set aside 30% of your net income as a starting point, and adjust based on your actual tax rate. Open a separate savings account, make quarterly payments, and track every deduction. Work with a CPA to ensure you’re not overpaying. By planning ahead, you’ll avoid the stress of a surprise tax bill and keep your new practice on solid financial footing.