7 Things to Know Before You Start a New Therapy Practice

Starting a therapy practice is exciting, but the tax side can feel overwhelming. You are a clinician, not an accountant, yet the decisions you make now will affect your tax bill for years. Here are the 7 things you need to know before you open your doors, with concrete numbers and steps you can take this week.

1. Your Business Structure Determines Your Tax Forms

Your choice of entity is not just a legal formality; it dictates how you pay taxes. Most therapists start as a sole proprietorship or a single-member LLC, but an S-corp may save you money once your income grows.

• Sole Proprietorship: No separate tax return. You report income on Schedule C of your personal return (Form 1040). You pay self-employment tax (15.3% in 2026) on all net earnings.
• Single-Member LLC: Treated as a sole proprietorship by default, unless you elect S-corp status. Same Schedule C filing.
• S-Corporation: You pay yourself a reasonable salary (subject to payroll taxes) and take the rest as distributions, which are not subject to self-employment tax. This can save you thousands, but requires payroll setup and extra filing (Form 1120-S).

Action this week: Talk to a CPA or tax professional. Ask: “At what income level does an S-corp make sense for my practice?” Generally, if your net income exceeds $60,000-$80,000, an S-corp may be worth the administrative cost.

2. Quarterly Estimated Taxes Are Non-Negotiable

As a self-employed therapist, no one withholds taxes from your pay. You must pay estimated taxes quarterly to the IRS (and often your state). If you don’t, you’ll face penalties and interest.

• 2026 due dates: April 15, June 15, September 15, and January 15, 2027.
• How to calculate: Use Form 1040-ES. A common rule: set aside 25-30% of your net income for federal taxes, plus your state rate (which varies, often 4-10%).
• Penalty for underpayment: The IRS charges interest on the shortfall, currently around 7-8% per year.

Action this week: Open a separate savings account for taxes. Transfer 25% of every client payment into it. If you use a practice management system, set up automatic transfers.

3. You Can Deduct a Home Office, But Be Careful

If you see clients in your home or do administrative work there, you may qualify for the home office deduction. The IRS requires that the space be used regularly and exclusively for business.

• Simplified method: Deduct $5 per square foot, up to 300 square feet (max $1,500).
• Actual method: Deduct a percentage of your mortgage interest, rent, utilities, and insurance based on the square footage of your office. This can be more valuable but requires more record-keeping.

Warning: If you see clients in your home, you may need to check zoning laws and insurance. Also, if you sell your home, the depreciation you claimed may be subject to recapture.

Action this week: Measure your office space. Calculate the percentage of your home’s total square footage. Keep a log of hours used for business.

4. You Can Deduct Almost Everything Related to Your Practice

Common deductions for therapy practices include:

• Office rent and utilities (if you have an outside office)
• Professional liability insurance (typically $500-$1,500/year)
• Continuing education (courses, books, travel to conferences)
• Licensing fees (state board fees, malpractice insurance)
• Marketing (website, business cards, online ads)
• Software (practice management, telehealth platforms, accounting tools)
• Office supplies (paper, pens, printer ink)
• Business meals (with referral sources, 50% deductible)
• Health insurance premiums (if you are self-employed, you may deduct them above the line)

Action this week: Start a spreadsheet or use an app like QuickBooks Self-Employed. Log every business expense as it happens, not at year-end.

5. You Must Track Mileage for Travel to See Clients

If you travel to see clients (home visits, hospital visits, or even driving to a conference), you can deduct mileage. The IRS standard mileage rate for 2026 is projected to be around $0.67 per mile (it was $0.655 in 2023, $0.67 in 2024, and $0.70 in 2025, so expect a slight adjustment).

• What counts: Driving from your home office to a client’s location, or to a training, is deductible. Commuting from home to a regular office is not.
• How to track: Use an app like MileIQ or a simple log in a notebook. Record date, miles, and purpose.

Action this week: Download a mileage tracking app and start logging every trip. Even if you think it’s small, it adds up.

6. Hiring a Bookkeeper or Accountant Is Worth the Cost

Many new therapists try to save money by doing their own books. But mistakes can cost you more in the long run. A professional can help you:

• Set up your chart of accounts correctly
• Categorize expenses accurately
• Plan for quarterly taxes
• Avoid IRS audits

Costs: A bookkeeper might charge $200-$500 per month for a small practice. An accountant for tax prep might charge $500-$1,500 per year. These are deductible business expenses.

Action this week: Interview two or three bookkeepers or CPAs who work with therapists. Ask about their experience with solo practices. Check references.

7. You Can Deduct Startup Costs, But Only After You Open

Before you officially open, you may incur costs like marketing, legal fees, and office setup. 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 they exceed that, the deduction is reduced.

• What counts: Costs incurred before you begin business, such as market research, advertising, training, and equipment.
• What doesn’t: Costs for assets like furniture or computers, which must be depreciated.

Action this week: Keep receipts for every startup expense. Create a folder (physical or digital) labeled “Startup Costs.”

FAQ

Q: When do I need to register for an EIN? A: You need an Employer Identification Number (EIN) if you have employees, or if you form an LLC or corporation. Even as a sole proprietor, you can get one for free from the IRS website. It’s useful for opening a business bank account.

Q: Can I deduct my own therapy sessions as a business expense? A: No, personal therapy is not deductible as a business expense. However, if you are required to undergo therapy as part of a licensing board’s mandate, you might be able to deduct it as a medical expense on Schedule A, but that’s subject to the 7.5% AGI threshold.

Q: What if I don’t make a profit in my first year? A: You can still deduct business expenses, but the IRS may classify your practice as a hobby if you don’t show a profit in 3 out of 5 years. To avoid this, keep detailed records and show that you are actively trying to make a profit.

Q: How long do I need to keep tax records? A: The IRS generally requires you to keep records for at least 3 years, but for assets like equipment, keep records for as long as you own the asset plus 3 years. To be safe, keep everything for 7 years.

Related guides

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

The bottom line

Starting a therapy practice is a business, and taxes are a major part of that business. By understanding these 7 things, you can avoid costly mistakes and keep more of your hard-earned money. Take one action this week: set up a separate tax savings account, track your expenses, or book a consultation with a tax professional. Your future self will thank you.