What Taxes Does a New Therapy Practice Pay? A Complete Guide
New therapy practice? Learn the exact taxes you'll pay: federal, state, self-employment, and more. Real numbers, deadlines, and steps to stay compliant.
Starting a therapy practice is exciting, but taxes can feel overwhelming. The short answer: you will pay federal income tax, self-employment tax (if solo), state income tax, and possibly payroll tax if you have employees. This guide breaks down each tax, gives realistic 2026 figures, and offers concrete steps to handle them this week.
Federal Income Tax
Your practice’s net profit (revenue minus expenses) is taxed at federal rates. For 2026, the brackets for single filers are roughly:
| Taxable Income | Rate |
|---|---|
| $0 to $11,600 | 10% |
| $11,601 to $47,150 | 12% |
| $47,151 to $100,525 | 22% |
| $100,526 to $191,950 | 24% |
| Higher amounts | 32%-37% |
If you’re married filing jointly, the brackets double. Most new therapists fall in the 22% or 24% bracket after expenses. You pay this tax on your net income, not gross revenue.
Self-Employment Tax
As a solo owner, you’re both employer and employee, so you pay Social Security and Medicare taxes. The self-employment tax rate is 15.3%: 12.4% for Social Security (up to an income cap of $176,100 in 2026) and 2.9% for Medicare (no cap). You get a deduction for the employer portion, but you still pay the full amount. For example, if your net profit is $60,000, you’ll owe roughly $9,180 in self-employment tax, plus income tax on top.
State Income Tax
Most states levy a state income tax, ranging from 0% (Texas, Florida, Nevada) to 13.3% (California top bracket). Check your state’s rate. Some states also have local taxes, like New York City. You’ll file a state return based on your practice’s net income, using similar deductions as federal.
Payroll Taxes (If You Have Employees)
If you hire W-2 employees (e.g., a receptionist or associate therapist), you must withhold and pay:
- Social Security: 6.2% from employee, 6.2% from you (12.4% total)
- Medicare: 1.45% from employee, 1.45% from you (2.9% total)
- Federal unemployment (FUTA): up to 6% on the first $7,000 per employee, but you get a credit for state unemployment taxes, so effective rate is often 0.6%.
- State unemployment (SUTA): varies by state, typically 2%-5% on a wage base.
You must file quarterly payroll tax returns (Form 941) and pay deposits. Many practices use a payroll service like Gusto or ADP, costing $40-$100/month, to avoid penalties.
Sales Tax (Usually Not Applicable)
Therapy services are generally exempt from sales tax because they’re medical or healthcare services. However, if you sell products (e.g., books, supplements, or branded merchandise), you may need to collect sales tax. Check your state’s rules. In most states, therapy sessions are not taxable.
Estimated Quarterly Taxes
The IRS expects you to pay taxes as you earn, not once a year. If you expect to owe more than $1,000, you must make quarterly estimated payments. Deadlines for 2026: April 15, June 15, September 15, and January 15, 2027. Use Form 1040-ES. Calculate your estimated tax by projecting your annual income, subtracting deductions, and applying tax rates. Pay online via IRS Direct Pay or EFTPS. If you underpay, you may face penalties.
Deductions That Lower Your Tax Bill
You can reduce taxable income with common deductions:
- Home office (if you have a dedicated space, use the simplified rate of $5 per square foot, up to 300 sq ft)
- Office rent, utilities, and internet
- Professional liability insurance
- Continuing education (courses, books, conferences)
- Licensing fees and association dues
- Marketing and website costs
- Health insurance premiums (if you’re self-employed, you can deduct them for yourself and dependents)
- Retirement contributions (SEP IRA, solo 401(k)): you can contribute up to 25% of net income, up to $70,000 in 2026.
Keep receipts and track expenses monthly. Use accounting software like QuickBooks or FreshBooks ($15-$30/month) to stay organized.
Practical Steps You Can Take This Week
- Open a separate business bank account to keep personal and business finances separate. This simplifies tax filing and protects deductions.
- Set up a bookkeeping system using software or a spreadsheet. Log all income and expenses daily.
- Estimate your quarterly taxes using last year’s return or a projection. If you’re new, estimate your first year’s net profit and divide by 4. Pay at least the minimum to avoid penalties.
- Create a tax calendar with all deadlines: quarterly estimated payments, payroll taxes (if applicable), and annual filing (April 15, 2027).
- Consult a CPA who works with small practices. They can help you choose a business structure (LLC, S-corp) and optimize deductions. Expect to pay $300-$800 for tax prep.
FAQ
Q: Do I need to file taxes if my practice lost money? A: Yes, you should file to report the loss. A net loss can offset other income and reduce your tax bill, and you can carry it forward to future years.
Q: Can I deduct my therapy license renewal fees? A: Yes, licensing fees are a business expense and fully deductible.
Q: What’s the difference between an LLC and an S-corp for taxes? A: An LLC is a pass-through entity, so you pay self-employment tax on all net income. An S-corp lets you pay yourself a reasonable salary (subject to payroll taxes) and take the rest as distributions, which avoid self-employment tax. This can save money if your net income exceeds $60,000, but it adds payroll admin costs.
Q: When are quarterly taxes due if I miss a deadline? A: If you miss a deadline, pay as soon as possible to minimize penalties. The IRS charges interest and penalties on late payments, so don’t wait.
The Bottom Line
New therapy practices face federal income tax, self-employment tax, state income tax, and payroll taxes if they have staff. The key is to track expenses, make estimated payments, and use deductions. Start with a separate bank account, set up bookkeeping, and talk to a CPA. With proper planning, taxes won’t derail your practice’s growth. Take action this week to avoid surprises next April.