7 Things to Know Before You Start a New Pt Practice

Starting a physical therapy practice is exciting, but the tax side can trip you up if you’re not prepared. Here are 7 things you need to know before you open your doors, so you can avoid costly mistakes and keep more of what you earn.

1. Your Business Structure Determines Your Tax Bill

The entity you choose affects how much you pay in self-employment tax, how you file, and your liability. For most new PT practices, an LLC is popular, but you’ll still need to decide how you’re taxed: as a sole proprietor, partnership, or S corporation.

• Sole Proprietor (default for single-owner LLC): Simple, but you pay 15.3% self-employment tax on all net income (Social Security and Medicare).
• S Corporation: You pay yourself a reasonable salary (subject to payroll taxes), and the rest is distributed as dividends, which are not subject to self-employment tax. This can save you thousands, but requires payroll setup and extra paperwork.
• Partnership (for multi-owner LLC): Each partner pays self-employment tax on their share, unless you elect S corp status.

Practical step: Talk to a CPA or tax professional this week. They can run the numbers for your expected income and help you choose the structure that minimizes taxes. Expect to pay $300-$500 for a consultation.

2. You Must Pay Estimated Taxes Quarterly

As a business owner, taxes aren’t withheld from your income. You’re responsible for paying estimated taxes four times a year (April 15, June 15, September 15, and January 15). If you don’t, you’ll face penalties and interest.

How to calculate: Estimate your annual income, subtract deductions, and apply your tax rate. Use IRS Form 1040-ES. Many new owners set aside 25-30% of each paycheck for taxes.

Practical step: Open a separate business savings account and transfer 25-30% of every deposit into it. This ensures you have the cash when estimated taxes are due.

3. You Can Deduct Startup Costs, But There’s a Limit

You can deduct up to $5,000 in startup costs in your first year, but the deduction phases out dollar-for-dollar once your total startup costs exceed $50,000. Startup costs include market research, training, legal fees, and advertising before you open.

What counts: Costs incurred before you officially open your doors. Once you’re open, those become regular business expenses.

Practical step: Keep every receipt from your planning phase. Categorize them as startup costs. If your total exceeds $50,000, the excess must be amortized over 180 months, so track accurately.

4. Home Office Deduction: Real but Risky

If you use a space in your home exclusively and regularly for your PT practice, you can deduct it. The simplified method gives you $5 per square foot, up to 300 square feet (max $1,500). The regular method uses actual expenses (mortgage interest, utilities, etc.) allocated by square footage.

The catch: The space must be used exclusively for business. If your home office doubles as a guest room, you can’t claim it. Also, if you have a separate office outside your home, you can’t claim a home office for the same work.

Practical step: Measure your home office and take photos. If you use it exclusively, use the simplified method for simplicity, unless your actual expenses are significantly higher.

5. Equipment and Supplies: Section 179 and Bonus Depreciation

Physical therapy equipment is expensive, but you can deduct it faster using Section 179 or bonus depreciation. Section 179 allows you to deduct the full purchase price of qualifying equipment (up to $1,050,000 in 2026) in the year you buy it, instead of depreciating over years. Bonus depreciation allows an additional 80% deduction for new equipment in 2026.

What qualifies: Equipment like ultrasound machines, treadmills, and computers. Supplies like tape and exercise bands are deductible as business expenses.

Practical step: Keep a detailed list of all equipment purchases with dates and costs. When you file, your CPA can help you decide which deduction method saves you the most.

6. Retirement Plans Reduce Your Taxable Income Now

A retirement plan isn’t just for your future; it’s a tax deduction today. Options include:

• SEP IRA: You can contribute up to 25% of your net earnings, max $66,000 in 2026. Easy to set up.
• Solo 401(k): Allows employee and employer contributions, max $66,000 plus catch-up if over 50. More paperwork but higher limits.
• Simple IRA: If you have employees, this allows both you and them to contribute.

Practical step: Even if you can’t max out, start with a small contribution. Every dollar you put in reduces your taxable income, saving you 22-37% in federal taxes.

7. Hiring Help: Employee vs. Independent Contractor

Misclassifying workers can lead to big penalties. In a PT practice, you might hire a front desk person (likely an employee) or a contract PT (possibly independent contractor). The IRS looks at control: if you control how, when, and where they work, they’re an employee.

Tax implications: As an employer, you must pay payroll taxes (Social Security, Medicare, unemployment) and withhold income taxes. For contractors, you issue a 1099-NEC but don’t withhold.

Practical step: Before hiring, review IRS Form SS-8 guidelines or consult a professional. When in doubt, classify as an employee to avoid penalties.

FAQ

Q: When should I hire a CPA? A: As soon as possible, ideally before you open. A CPA can help you set up your books, choose a structure, and plan for taxes. Expect to pay $200-$400 per hour for advice.

Q: What if I can’t pay my estimated taxes on time? A: The IRS charges penalties and interest. If you’re short, pay as much as you can by the due date, then set up a payment plan. It’s cheaper than ignoring it.

Q: Can I deduct my health insurance premiums? A: Yes, if you’re self-employed and not eligible for an employer plan. You can deduct premiums for yourself, your spouse, and dependents, reducing your adjusted gross income.

Q: What records should I keep? A: Keep all receipts, bank statements, and invoices for at least 3 years, but 7 years is safer. Use accounting software like QuickBooks or Xero to track everything digitally.

Related guides

• 7 Mistakes New Pt Practices Make in Their First Year
• 7 Questions to Ask Before Buying a New Pt Practice
• Best New Pt Practice Tools Compared in 2026

The bottom line

Starting a PT practice is a big step, but taxes don’t have to be a headache. Choose the right structure, set aside money quarterly, and track every deduction. The 7 things above are your starting point. Take action this week: schedule a CPA meeting, open a tax savings account, and start a simple spreadsheet for expenses. Your future self will thank you.