What Taxes Does a New Optometry Practice Pay? A Complete Guide
Learn the federal, state, and local taxes new optometry practices must pay, with realistic 2026 figures and practical steps to stay compliant.
Starting an optometry practice means taking on a new set of financial responsibilities, and taxes are among the most critical. You will owe federal income tax, self-employment tax, payroll tax, and possibly state and local taxes. This guide breaks down each tax, what it costs, and how to handle it, so you can plan your budget and avoid surprises.
Federal Income Tax
Your practice’s structure determines how you pay federal income tax. Most new optometry practices choose an S-corporation or LLC, but sole proprietorships and partnerships are also options.
- S-corporation: The practice files Form 1120-S, but profits and losses pass through to your personal return. You pay tax at your individual rate, which ranges from 10% to 37% for 2026. You must pay yourself a reasonable salary, which is subject to payroll taxes.
- LLC (single-member): Treated as a sole proprietorship by default. You report business income on Schedule C of your personal return. You pay income tax plus self-employment tax on all net earnings.
- Partnership: Files Form 1065, and each partner reports their share on Schedule K-1.
Estimated payments: Since taxes are pay-as-you-go, you must make quarterly estimated payments if you expect to owe more than $1,000. For 2026, the due dates are April 15, June 15, September 15, and January 15. Use Form 1040-ES. If you underpay, you may face penalties.
Self-Employment Tax
If you are a sole proprietor, partner, or LLC member, you pay self-employment tax to cover Social Security and Medicare. The rate is 15.3% on net earnings up to the Social Security wage base, which is $176,100 for 2026. Above that, you pay only the 2.9% Medicare portion, plus an additional 0.9% for high earners.
For example, if your practice nets $120,000, you owe roughly $18,360 in self-employment tax. Half of this is deductible on your income tax return.
If you choose S-corp status, you pay payroll taxes on your salary, but not on distributions. This can save money, but you must pay a reasonable salary, or the IRS may reclassify distributions.
Payroll Taxes
If you have employees, you must withhold and pay payroll taxes. This includes:
- Federal income tax withholding: Based on each employee’s W-4.
- Social Security and Medicare (FICA): 7.65% from the employee and 7.65% from you, for a total of 15.3%.
- Federal unemployment tax (FUTA): 6% on the first $7,000 of each employee’s wages, but you get a credit for state unemployment tax, often reducing it to 0.6%.
You must deposit these taxes regularly, either monthly or semi-weekly, using the Electronic Federal Tax Payment System (EFTPS). File Form 941 quarterly to reconcile.
State and Local Taxes
State taxes vary widely. Most states have a corporate income tax or a pass-through entity tax. For example, California has a 8.84% corporate rate, while Texas has a franchise tax. Check your state’s revenue department for specifics.
You may also owe:
- State unemployment insurance: Rates vary, often from 1% to 6% of wages.
- Sales tax: If you sell retail products like contact lenses or eyeglasses, you must collect sales tax. Rates range from 0% to over 10% depending on your state and locality. Register with your state to get a permit.
- Local taxes: Some cities impose gross receipts taxes or business license fees. For example, New York City has a general corporation tax.
Property and Other Taxes
If you own your building, you pay property tax, which is assessed by the county. Rates vary, but expect 1% to 2% of the property’s value annually. If you lease, you may still pay a share of property tax through your lease.
Also, you may need to pay personal property tax on equipment and furniture. Some states levy this on business assets. Check your local rules.
Tax Deductions Specific to Optometry
To reduce your taxable income, take advantage of deductions:
- Equipment and supplies: Exam chairs, phoropters, lensometers, and inventory can be deducted under Section 179 or bonus depreciation.
- Office rent and utilities: Deduct a portion if you have a home office, but only if it’s your principal place of business.
- Professional fees: Malpractice insurance, continuing education, and license fees are deductible.
- Software and technology: Practice management software, EHR, and billing tools are deductible.
Keep detailed records and receipts. Consider using accounting software like QuickBooks to track expenses.
Quarterly Estimated Tax Payments: A Timeline
Here’s a practical schedule for 2026:
| Payment | Due Date | Covers Period |
|---|---|---|
| 1st | April 15 | Jan 1 - Mar 31 |
| 2nd | June 15 | Apr 1 - May 31 |
| 3rd | September 15 | Jun 1 - Aug 31 |
| 4th | January 15, 2027 | Sep 1 - Dec 31 |
To calculate your payments, estimate your annual income and tax liability. Use Form 1040-ES or work with a CPA. If your income is uneven, you can annualize your income.
FAQ
Q: Do I need to collect sales tax on eye exams? A: No, professional services like eye exams are generally not taxable. But sales of products, like glasses or contacts, are taxable in most states. Check your state’s rules.
Q: What is the best business structure for tax savings? A: For many optometrists, an S-corp saves on self-employment tax, but you must pay yourself a reasonable salary. Compare the costs of payroll processing and compliance. A CPA can help you model your situation.
Q: Can I deduct the cost of starting my practice? A: Yes, up to $5,000 in startup costs can be deducted in your first year, with the rest amortized over 180 months. This includes legal fees, marketing, and training.
Q: What happens if I miss a tax deadline? A: You may face penalties and interest. The failure-to-pay penalty is 0.5% per month, and the failure-to-file penalty is 5% per month. File even if you can’t pay, to reduce penalties.
The Bottom Line
New optometry practices face a complex tax landscape, but with planning, you can manage it. Start by choosing the right business structure, set aside money for taxes, and use a professional accountant. Review your tax situation quarterly, and keep accurate records. By staying proactive, you’ll avoid penalties and keep more of your hard-earned revenue.