The Complete New Pt Practice Startup Checklist

Starting a physical therapy practice is exciting, but the tax side can feel overwhelming. This checklist walks you through the essential tax steps you need to take before and during your first year, so you avoid penalties and keep more of what you earn.

1. Choose the Right Business Entity

Your entity type affects how you pay taxes and your personal liability. For most PT practices, an LLC or S-Corp is the best choice.

• Sole Proprietorship: Easiest and cheapest, but you are personally liable for business debts and lawsuits. You pay self-employment tax on all net income.
• LLC (Single-Member or Multi-Member): Provides liability protection. Single-member LLCs are taxed like sole proprietorships by default. Multi-member LLCs are taxed as partnerships. You can elect S-Corp status later.
• S-Corp: Allows you to pay yourself a reasonable salary and take the rest as distributions, which are not subject to self-employment tax. This can save you thousands, but requires payroll setup and more paperwork.
• C-Corp: Rarely used for small PT practices due to double taxation.

Action step: If you haven’t formed your entity yet, consult with a CPA or use a service like LegalZoom or Incfile (cost: $0-$500 plus state fees). If you already have an LLC, consider electing S-Corp status before your first tax year if your net income will exceed $40,000.

2. Get an EIN and Open a Business Bank Account

An Employer Identification Number (EIN) is your business’s tax ID. You need it to open a business bank account, hire employees, and file taxes.

• Apply for an EIN free on the IRS website. It takes about 15 minutes.
• Open a separate business checking account. This is critical for clean bookkeeping and tax deductions. Many banks offer free business checking if you maintain a minimum balance (e.g., $1,000-$5,000).

Action step: Apply for your EIN this week. Then open a business bank account and use it exclusively for business income and expenses.

3. Set Up Your Bookkeeping System

Accurate books are the foundation of tax filing. You need to track every dollar in and out.

• Choose accounting software: QuickBooks Online ($30-$200/month), Xero ($13-$70/month), or FreshBooks ($17-$55/month). QuickBooks is the most common for PT practices.
• Set up a chart of accounts: income, rent, utilities, equipment, supplies, marketing, insurance, etc.
• Reconcile your bank account monthly.
• Decide: do it yourself or hire a bookkeeper ($200-$500/month for a small practice).

Action step: Sign up for accounting software and spend 2 hours setting it up. If you’re not confident, hire a part-time bookkeeper to set it up and train you.

4. Understand Your Tax Obligations

As a PT practice owner, you have several tax obligations:

• Income Tax: Federal and state income tax on your net profit.
• Self-Employment Tax: 15.3% (Social Security and Medicare) on net earnings, if you’re a sole proprietor or LLC owner.
• Estimated Quarterly Taxes: You must pay estimated taxes quarterly if you expect to owe more than $1,000. Deadlines: April 15, June 15, September 15, and January 15.
• Payroll Taxes: If you have employees, you must withhold and pay payroll taxes (Social Security, Medicare, federal income tax, and unemployment).

Action step: Calculate your estimated tax payments using IRS Form 1040-ES. A CPA can help you determine the right amount.

5. Track Deductible Expenses from Day One

Every business expense you track reduces your taxable income. Common PT practice deductions include:

• Rent and utilities for your clinic space
• Equipment (treatment tables, ultrasound machines, etc.) and depreciation
• Supplies (therabands, electrodes, office supplies)
• Marketing and advertising (website, Google Ads, flyers)
• Professional liability insurance and health insurance
• Continuing education and licensing fees
• Software subscriptions (EMR, scheduling, accounting)
• Travel for business (mileage, lodging, meals)
• Home office deduction if you have a dedicated space

Action step: Create a folder (physical or digital) for receipts. Use a mileage tracking app like MileIQ ($5.99/month) to log business miles.

6. Hire a Tax Professional

Tax law is complex, and mistakes are costly. A CPA or Enrolled Agent who works with small practices can save you money and stress.

• Cost: $300-$800 for a basic business tax return; $150-$300 per hour for consultations.
• Look for someone with experience in healthcare or service businesses.

Action step: Interview 2-3 CPAs this month. Ask about their experience with PT practices and their fee structure.

7. Plan for Quarterly Taxes

Quarterly estimated taxes are due even if you have an accountant. If you don’t pay enough, you’ll face penalties.

• Calculate your expected annual income and tax liability.
• Pay 25% of that each quarter.
• Use the IRS Direct Pay system or EFTPS to pay online.

Action step: Mark the quarterly deadlines on your calendar. Set aside 25-30% of every deposit into a separate savings account for taxes.

8. Keep Personal and Business Finances Separate

Mixing personal and business money is a red flag for the IRS and can jeopardize your liability protection.

• Never pay personal expenses from your business account.
• Pay yourself a reasonable salary or owner’s draw.
• Document any loans you make to the business.

Action step: Review your bank statements monthly to ensure no personal expenses are mixed in.

9. File Your First Tax Return Correctly

Your first tax return sets the tone. If you’re a sole proprietor or single-member LLC, you’ll file Schedule C with your personal return. If you’re an S-Corp, you’ll file Form 1120-S.

• Deadline: April 15 (or March 15 for S-Corps).
• Extensions are available, but estimated taxes are still due on time.

Action step: Work with your CPA to prepare your return. Review it carefully before filing.

10. Stay on Top of Ongoing Compliance

Tax compliance is not a one-time event. Stay organized throughout the year.

• Keep all receipts and records for at least 7 years.
• File all required state and local taxes (sales tax, if applicable).
• Review your entity status annually with your CPA.

Action step: Set a recurring monthly reminder to review your books and a quarterly reminder to pay estimated taxes.

FAQ

Q: Do I need to pay myself a salary if I’m an LLC? A: If you’re a sole proprietor or single-member LLC, you don’t have to pay yourself a salary; you take owner’s draws. If you elect S-Corp status, you must pay yourself a reasonable salary (e.g., $50,000-$70,000 for a PT) and report it on payroll.

Q: What is the penalty for not paying quarterly taxes? A: The IRS charges interest and penalties on underpayment. The penalty is roughly 0.5% of the unpaid amount per month, up to 25%. Avoid it by paying at least 90% of your current year’s tax liability or 100% of last year’s liability.

Q: Can I deduct the cost of my EMR software? A: Yes, software subscriptions are deductible as a business expense. If you purchase software outright, you may need to depreciate it over time.

Q: How long do I need to keep tax records? A: Keep all tax returns and supporting documents for at least 7 years. This includes receipts, bank statements, and mileage logs.

Related guides

• The Annual New Pt Practice Review Checklist
• 7 Mistakes New Pt Practices Make in Their First Year
• 7 Questions to Ask Before Buying a New Pt Practice

The bottom line

Getting your taxes right from the start is not optional. It protects your practice and your personal finances. Follow this checklist, set up your systems early, and work with a professional. The time and money you invest now will save you much more later. Start with the first three steps this week: choose your entity, get your EIN, and open a business bank account. Then build from there.