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Setting up a retirement plan for your therapy practice helps attract and retain dedicated employees. More importantly, it allows the people working for your practice to take concrete steps planning their futures.
Even if you don’t have any employees, you can set up a retirement plan for your therapy practice now and immediately begin setting aside funds and even deferring some of your income tax.
Below, you’ll learn about the different types of retirement plans available to therapy practice owners, as well as the factors you should consider before deciding on the right one for you.
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This article covers the different types of plans available, but it doesn’t tell you which company to set one up with.
If we were to recommend a specific company, it would be Guideline. Heard has partnered with Guideline to offer simple and straightforward retirement plans to therapists. Learn more about Heard’s partnership with Guideline and how you can benefit.
Whether you’re setting up one up for employees or solely for your own use, a retirement plan comes with numerous benefits, including:
Retirement plans can be split up into three categories:
Traditional pensions, whereby an employer commits to contributing a certain amount of money to a pool of assets, are increasingly rare. Only 15% of employees in the private sector today have defined benefit plans.
That’s partly because less expensive options are available. It costs a company less to set up its employees with a 401(k), for example, than to give them a pension. Other options, such as IRAs, offer more flexibility.
Compared to defined contribution plans and IRAs, pensions also cost more to set up and maintain. In most cases, setting up a pension is not a realistic choice for a small therapy practice.
With a 401(k), an employee has the option of differing a portion of their income to their retirement savings account, where it’s invested according to conditions they set. Their employer, in turn, may agree to contribute funds to the account—typically either a fixed amount or a percentage of the employee’s contributions.
There are different types of 401(k)s. How an employee’s deferred income is taxed depends on what kind of 401(k) they have:
If your therapy practice is just starting out, and you don’t have any employees, an IRA may be a good choice. It’s fairly simple and inexpensive to set up and run, and if you’re quitting another job in order to set out on your own, you can roll your pre-existing 401(k) forward into your new IRA.
When you open an IRA, you have a wide range of investments to choose from, including stocks, bonds, mutual funds, and EFTs. The contribution limit to your IRA is a maximum dollar amount; it can change year to year, and depends on the type of IRA you have.
Here are the most common types of IRAs available to self-employed therapists:
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A financial advisor can steer you in the right direction when choosing a retirement plan for your therapy practice. Before setting up a meeting, ask yourself the following:
Before considering retirement plans for your therapy practice, familiarize yourself with these concepts:
Early withdrawal penalty: In order to discourage plan holders from withdrawing their funds before retirement, most retirement plans penalize withdrawals before the age of 59 ½ with a 10% fee.
Employee contribution limits: By federal law, you’re limited in how much money you can contribute to your plan each year. These limits are higher for 401(k)s than they are for IRAs.
Form 5500: If your therapy practice is sponsoring a 401(k) plan for employees, you’re required to file Form 5500 each year. The report includes information about the plan, contributions, participants, and more.
Hardship withdrawal: Your retirement account isn’t intended to be a fund you withdraw from any time you need extra cash. However, retirement plan providers may allow you to make hardship withdrawals in certain instances—for example, in order to cover medical expenses. Typically, the withdrawal is subject to state and federal income taxes, and may also be subject to state and federal early withdrawal penalties.
Matching contributions: When an employee contributes money to their retirement account, their employer may match it up to a certain amount. One common method is for an employer to match 100% of an employee’s contributions, up to a certain limit defined as a percentage of that employee’s annual compensation. For example, if an employee earns $50,000 annually, and their employer agrees to match their IRA contributions up to 5%, the employer agrees to contribute up to $2,500 to the employee’s fund each year.
Nondiscrimination testing: Federal law says a company’s 401(k) plan may not unfairly favor those making the most money at the company (typically owners and executives). To ensure this requirement is met, any company offering employees a 401(k) must undergo nondiscrimination testing each year. Companies with safe harbor 401(k)s—plans that meet certain minimum requirements—are not required to undergo nondiscrimination testing.
Required minimum distributions (RMDs): Most tax-advantaged retirement accounts (eg. traditional IRAs) require you to withdraw a minimum amount per year from your account once you’ve reached age 72. Only Roth IRAs do not include RMDs.
Summary plan description (SPD): A company with a retirement plan is legally required to provide employees with an overview of the program written in easy-to-understand language that makes clear how the plan works, contribution limits, vesting requirements, and other essential information.
Vesting: A vesting schedule for a retirement plan determines how much of your employer’s matching contributions you can claim each year you’re with the company. For instance, your employer’s matching 401(k) contributions may vest at a rate of 20% per year, meaning you own 100% of them after five years with the company. If you leave before the contributions fully vest, you won’t be able to claim 100% of them. The purpose of such vesting schedules is to encourage employees to stay with a company long term.
Banks and financial services companies are typically the first places business owners turn when setting up retirement plans for their employees. Different institutions offer different plans with different terms, so it’s worthwhile to shop around. A financial advisor is also a major asset when choosing a plan.
Online services like Guideline may be able to provide retirement plans that are easier and less expensive to set up than those offered by banks and traditional financial institutions.
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Considering offering your employees other benefits besides retirement plans? Learn more about how to choose a healthcare plan for your therapy practice.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Bryce Warnes is a West Coast writer specializing in small business finances.
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Tax deductions can save you money on your taxes, but how do you know what qualifies as a deductible expense for your therapy practice?
It’s not always convenient to whip out our complete list of tax deductions for therapists every time you fill up your gas tank or buy a business associate coffee.
But if you understand the criteria for deductions, you’ll have a general idea which receipts you need to save and which expenses you can earmark as deductions.
Here’s how to tell which expenses are likely to be deductible, some common pitfalls to avoid, and best practices for claiming your deductions.
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There’s a lot of confusion among new business owners when it comes to claiming the standard deduction or itemizing your deductions, and how that relates to deductible business expenses. Many believe that, if they claim the standard deduction on their tax return, they can’t claim business expenses. Luckily, that isn’t true.
You claim either the standard deduction or itemized deductions when you file your personal taxes (Form 1040).
If you choose to itemize, you’ll list each deductible expense on Schedule A. Typical itemized deductions include:
As an alternative to itemizing each of these—and retaining records to support your claims in case of an audit—you may choose to take the standard deduction. It’s a flat rate that typically changes one year to the next. An estimated 90% of individual filers claim the standard deduction rather than itemizing.
Deductible expenses are different from itemized deductions and the standard deduction. You can only report these expenses if you are self-employed. They include expenses you incur in the course of running your business, and you report them on Schedule C (Form 1040).
In the words of the IRS:
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
“Ordinary and necessary” is a good rule of thumb when determining whether an expense is deductible. Ask yourself two questions:
Whether expenses are ordinary and necessary depends upon the specifics of your business.
For instance, if you purchase a weighted blanket to use with clients during therapy sessions, you can likely deduct the expense, because it’s considered ordinary for your line of business. If a landscape contractor purchased a weighted blanket, it’s unlikely they’d be able to deduct it from their taxes.
Similarly, if you have an office, you can deduct the cost of chairs to furnish your waiting room. If you work from home, on the other hand, and don’t see clients in person, it’s unlikely you’d be able to deduct the same expense, since the chairs wouldn’t be used by waiting clients. The purchase doesn’t help you do business.
If you hire a qualified accountant or use Heard to file your taxes, rest assured that any deductions you claim will be valid. If you file your own taxes, on the other hand, you run the risk of making an error. Here are the most common deduction mistakes new business owners make when filing taxes.
Some expenses, such as rent, are fairly straightforward to claim: You simply add up the total amount spent on that particular expense during the course of the year, and report it on Schedule C.
Others are less straightforward. For instance:
Calculating each of these requires doing a little arithmetic. If you make an error—or use out-of-date deduction rates, as with the standard mileage deduction—you could overcalculate or undercalculate your deduction.
Hopefully the section above on the standard deduction versus itemized deduction versus deductible business expenses clears up any uncertainty you may have had about different types of tax deductions. Because, when you get them mixed up, it can lead to serious errors.
Two common ones:
If you plan to do your own business taxes, it’s essential you’re 100% clear on the difference between these different types of deductions.
Some expenses remain the same one year from the next. For instance, so long as your internet bill doesn’t increase, the total amount you spent on your business internet connection in 2022 should be the same in 2023.
Other expenses are variable. Business travel is a good example. If you drive to three different business conferences in 2022, but drive to none in 2023, the amount of business mileage you claim from one year to the next is liable to differ considerably.
It may be tempting each year to report the same amount for certain deductions. For instance, on your last tax return, suppose you claimed a $112.56 office supplies expense. This year, you forgot to keep good records, so you just guesstimate, and report $112.56 again.
Two problems with this:
To be fair, it’s unlikely the IRS has formed a secret task force dedicated to the misreported office supplies deductions of small therapy practices. But unchanging, cut-and-copy deductions still have the potential to land you in hot water.
Any deduction you claim for any amount must be supported with records. If you’re audited, the IRS wants proof you actually spent (for instance) $1,567.89 on a new laptop in 2022, and that you’re not just trying to avoid paying your taxes.
It doesn’t matter if you show the IRS agent your laptop, or even the credit card statement showing you paid for it. They want to see a receipt.
The statute of limitations on business deductions is six years. Meaning, if you’re audited, the IRS could request records of all your deductible expenses going back six tax years. If you don’t have the information, you could face penalties.
If the IRS believes you made an error on your tax return, they may penalize you. There are two types of penalty:
In both cases, the amount you’ll be penalized is a flat 20% of the tax amount you failed to pay (plus the tax amount itself).
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You’re expected to make a reasonable attempt to follow tax laws and file an accurate return. If the IRS believes you failed to do so, you’ll be penalized. Common errors that lead to this penalty include failing to keep records supporting your claims, or failing to check the accuracy of your deductions.
In the eyes of the IRS, you’ve made a substantial understatement of your income if you understate your income by either 10% of the total amount you owe, or $5,000—whichever is greater.
For more information on IRS penalties, see our article What to Do if you Get a Tax Notice as a Therapist.
You can’t always look at a business expense and, based on the “ordinary and necessary” rule of thumb, determine whether it’s a legitimate deduction. Here are some of the most valuable tax write-offs for therapists:
For a complete guide, see our Complete List of Tax Deductions for Therapists.
The surest way to avoid IRS penalties while making sure you don’t miss out on any tax deductions is by working with a tax professional. Any qualified accountant or tax advisor you hire should be able to help you identify the deductions you qualify for and take advantage of them.
Not every accountant or tax advisor is an expert on therapy practices, however. For that, you can trust Heard. We exclusively work with small therapy practices, so we’re familiar with the ins and outs of tax deductions for therapists. Learn more about how Heard can help with your taxes.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Bryce Warnes is a West Coast writer specializing in small business finances.
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To start a therapy practice in Oregon, follow these seven steps:
If you’re moving your practice from a different state, there’s an eighth step you’ll need to follow: Figuring out how to pay taxes in multiple states.
This article covers the bare essentials needed to get your therapy practice up and running in the Beaver State. For advice on budgeting, marketing your practice, and billing your clients, check out our general guide, How to Start a Therapy Practice.
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Oregon boasts 36 counties and 241 incorporated cities. Before you settle on a location for your therapy practice—even if that location is your own home—you must make sure the local zoning allows you to operate there.
In cases where you aren’t typically allowed to operate a business in a certain area—for instance, a home business in a residential area—you can apply for a zoning variance. A variance is more or less an exception to zoning laws.
For information on whether you need to apply for a variance, what types of zoning your town or city recognizes, and what kind of business you can perform there, contact your local municipality.
In Oregon, it costs $50 to register an assumed name for your business. The fastest and easiest way to register your business name is through the Oregon Secretary of State Secure Access System.
If you’re a sole proprietor planning to do business under a name different from your “real and true” name—that is, your personal name as it appears on legal documents—you must register an assumed name. General partnership names must include the names of all partners, or else register an assumed name.
Before registering a name, check its availability. Note that, while Oregon’s name search tool allows you to search at the state level, since names are registered on a county by county basis, it’s possible for multiple businesses with the same name to operate, but in different counties. When you register your business name, you can opt to have it registered in all counties at no extra charge.
Each state recognizes—and registers—different business structures (aka “entity types”). Your practice’s business structure affects how its income is taxed and who may own shares of the practice.
In Oregon, the business structures you can choose from are:
*Only individuals working in regulated professions—including mental healthcare workers—may form LLPs.
This list is just an introduction. Before settling on a business structure, talk to your accountant—and, if necessary, a lawyer—for help choosing the right one.
For more information, check out our article How to Choose a Business Entity for Your Therapy Practice.
When you go into business for yourself, you’re considered a sole proprietor by default. As a sole proprietorship, your business is identical with your person: all revenue is your revenue, all losses are your losses.
Sole proprietorships are the simplest form of business structure, but offer nothing in the way of legal or financial protection.
In a general partnership, all members are general partners—meaning, they all share legal and financial liability equally.
A business corporation is a typical corporation as we know it: It exists separately from its owners, who own shares in it. There are two types: C corporations and S corporations. C corporations may elect S corporation status by filing IRS Form 2553.
C corporations have their income taxed separately from the income of the shareholders. S corporations pass on the tax liability to each shareholder. (For a variety of reasons, Heard recommends its clients form S corporations at the federal level.)
The LLC business structure offers liability protection similar to a corporation, but with the option to be taxed in different ways. Your accountant may recommend you elect to be taxed as either an S corporation or a partnership.
A limited partnership offers some liability protection for some of its members. To operate as a limited partnership, at least one individual acts as a general partner, who heads the company and makes major decisions, while at least one other individual acts as a limited partner, who does not.
General partners have unlimited liability—they are personally liable for the partnership’s debts, legal proceedings, and so on. Limited partners are only liable for their controlling share of the partnership.
Unlike a limited partnership, none of the members of an LLP are limited partners. In this case, “limited” refers to the liability assumed by the partnership as a whole in case one of its members is sued for malpractice. In Oregon, individuals who practice regulated professions may form LLPs. That includes therapists.
To register your business in Oregon, you need to do two things:
Here’s a breakdown for each of the business structures covered in section 3 above.
Filing fees: No cost to form, fees apply to register an assumed name
Aside from registering an assumed name, there are no extra steps you need to take in order to form a sole proprietorship in Oregon.
Filing fees: No cost to form, fees apply to register an assumed name
Aside from registering an assumed name, there are no extra steps you need to take in order to form a general partnership in Oregon. Consider drafting a partnership agreement in order to easily resolve any future disputes between partners.
Filing fees: $100 to file Articles of Incorporation
Once you’ve incorporated in Oregon, you can elect S corporation status by filing IRS Form 2553.
Filing fees: $100 to file Articles of Organization
Filing fees: $100 to file a Certificate of Partnership
Filing fees: $100 to file a Certificate of Partnership
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To operate in Oregon, your therapy practice may require licenses or permits. These are handled at the federal, state, and local levels.
Luckily, therapy practices do not need any special federal permits or licenses to operate in Oregon. And, outside of standard licensure for mental health practitioners, they also do not require permitting or licensing at the state level.
At the local level—meaning your municipality (town, city, etc.), you may be required to purchase a business license to operate. Contact your local permitting office for details.
You can do a search of all 1,500 licenses administered at the State level using Oregon’s License Directory.
The following types of business insurance are highly recommended for therapy practices operating in Oregon:
While shopping for insurance, look for a business owner’s policy (BOP). A BOP typically includes the three core types of insurance coverage: general liability, commercial property, and business income.
General liability insurance protects you in case of any damages you cause to someone else’s property or person. Since the State of Oregon puts no cap on liability lawsuit rewards, it’s important to make sure you’re well-covered. Aim for at least $1 million coverage.
Commercial property insurance protects property your therapy practice owns, like computers, business phones, or office furniture. It also protects the building where you operate, whether owned or rented.
Business income insurance covers you for loss of income due to specific circumstances. These include natural disasters, such as fire or storm damage; and man-made disasters, like theft.
Professional liability insurance covers you in case you are sued for libel or slander, for mishandling patient records, for providing inaccurate advice, or for otherwise causing harm in the process of practicing your profession.
If you have employees, you’re legally required to cover them with Oregon worker’s compensation insurance. This pays for medical expenses, lost wages, and ongoing care in the event one of your employees is injured on the job.
Every business earning income in Oregon is required to pay state taxes. If you owe over $1,000 in state taxes, you’re required to pay that amount in quarterly installments.
Wondering how to get started? Check out How to Pay Income Tax in Every State as a Therapist.
If you started your therapy practice in a different state, and you’re moving to Oregon—or if you operate in Oregon, and you’re planning to move to a different state—you’ll need to figure out how to pay taxes in multiple states.
The rules vary depending on which states you operate in over the course of the year, and how long you spend in each. Check out how moving to a different state impacts your taxes as a therapist.
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Want to learn more? Check out our guide on how to start a therapy practice.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Bryce Warnes is a West Coast writer specializing in small business finances.
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To start a therapy practice in Massachusetts, follow these seven steps:
If you’re moving your practice from a different state, there’s an eighth step you’ll need to follow: Figuring out how to pay taxes in multiple states.
This article covers the bare essentials needed to get your therapy practice up and running in the Bay State. For advice on budgeting, marketing your practice, and billing your clients, check out our general guide, How to Start a Therapy Practice.
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Massachusetts boasts 14 counties and 351 municipalities. Before you settle on a location for your therapy practice—even if that location is your own home—you must make sure the local zoning allows you to operate there.
In cases where you aren’t typically allowed to operate a business in a certain area—for instance, a home business in a residential area—you can apply for a zoning variance. A variance is more or less an exception to zoning laws.
For information on whether you need to apply for a variance, what types of zoning your town or city recognizes, and what kind of business you can perform there, contact your local municipality.
If your therapy practice is a sole proprietorship or general partnership, and you intend to do business other than your own (or yours and your partners’), you’re required by law to register an assumed name in Massachusetts.
Here’s a step-by-step guide:
Each state recognizes—and registers—different business structures (aka “entity types”). Your practice’s business structure affects how its income is taxed and who may own shares of the practice.
In Massachusetts, the business structures you can choose from are:
*In the Commonwealth of Massachusetts, licensed professionals—including psychologists and allied mental health professionals— who wish to incorporate or register LLCs or LLPs must form the “professional” versions of these structures.
For a side-by-side comparison, see Massachusetts Secretary of the Commonwealth’s business structure comparison chart.
This list is just an introduction. Before settling on a business structure, talk to your accountant—and, if necessary, a lawyer—for help choosing the right one.
For more information, check out our article How to Choose a Business Entity for Your Therapy Practice.
When you go into business for yourself, you’re considered a sole proprietor by default. As a sole proprietorship, your business is identical with your person: all revenue is your revenue, all losses are your losses.
Sole proprietorships are the simplest form of business structure, but offer nothing in the way of legal or financial protection.
In a general partnership, all members are general partners—meaning, they all share legal and financial liability equally.
Those practicing professions in the Commonwealth of Massachusetts are typically required to form professional corporations. A professional corporation functions like a typical corporation, with added protections in case a shareholder is sued for malpractice. All shareholders in a professional service corporation must be licensed and practicing the same profession.
There are two types: C corporations and S corporations. C corporations may elect S corporation status by filing IRS Form 2553.
C corporations have their income taxed separately from the income of the shareholders. S corporations pass on the tax liability to each shareholder. (For a variety of reasons, Heard recommends its clients form S corporations at the federal level.)
The LLC business structure offers liability protection similar to a corporation, but with the option to be taxed in different ways. Your accountant may recommend you elect to be taxed as either an S corporation or a partnership.
The PLLC business structure is identical to the LLC, except for the fact that every member must be a professional licensed by the State, and provide proof of certification when the PLLC files its articles of formation with the Secretary of the Commonwealth. Therapists qualify as professionals licensed by the state.
The PLLC business structure provides extra liability protection for all members in case of legal proceedings brought against the organization (eg. a patient suing for malpractice.)
A limited liability partnership is similar to a general partnership, but with extra protections You can think of a PLLP as the “professional version” of a general partnership, with extra liability protection relevant to professionals.
The PLLP structure protects each partner against outcomes of the other partners’ professional negligence. For instance, if one partner in a PLLP is sued by a client, the other partners are not liable.
To register your business in Massachusetts, you need to do two things:
While Massachusetts allows you to register some business structures online, professional business structures—professional corporations, PLLCs, and PLLPs—must by registered by submitting paper documents.
Here’s a breakdown for each of the business structures covered in section 3 above.
Filing fees: No cost to form, fees apply to register an assumed name
Aside from the optional step of registering an assumed name, there are no extra steps you need to take in order to form a sole proprietorship in Massachusetts.
Filing fees: No cost to form, fees apply to register an assumed name
Aside from registering an assumed name, there are no extra steps you need to take in order to form a general partnership in Massachusetts. Consider drafting a partnership agreement in order to easily resolve any future disputes between partners.
Filing fees: $275 to file Articles of Incorporation, plus $25 to appoint a registered agent, plus $125 each year to file an annual report
Once you’ve incorporated in Massachusetts, you can elect S corporation status by filing IRS Form 2553.
Filing fees: $500 to register, plus $500 each year to file an annual report
Filing fees: $500 to register, plus $500 each year to file an annual report
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To operate in Massachusetts, your therapy practice may require licenses or permits. These are handled at the federal, state, and local levels.
Luckily, therapy practices do not need any special federal permits or licenses to operate in Massachusetts. And, outside of standard licensure for mental health practitioners, they also do not require permitting or licensing at the state level.
At the local level—meaning your municipality (town, city, etc.), you may be required to purchase a business license to operate. Contact your local permitting office for details.
The following types of business insurance are highly recommended for therapy practices operating in Massachusetts:
While shopping for insurance, look for a business owner’s policy (BOP). A BOP typically includes the three core types of insurance coverage: general liability, commercial property, and business income.
General liability insurance protects you in case of any damages you cause to someone else’s property or person. Since the Commonwealth of Massachusetts puts no cap on liability lawsuit rewards, it’s important to make sure you’re well-covered. Aim for at least $1 million coverage.
Commercial property insurance protects property your therapy practice owns, like computers, business phones, or office furniture. It also protects the building where you operate, whether owned or rented.
Business income insurance covers you for loss of income due to specific circumstances. These include natural disasters, such as fire or storm damage; and man-made disasters, like theft.
Professional liability insurance covers you in case you are sued for libel or slander, for mishandling patient records, for providing inaccurate advice, or for otherwise causing harm in the process of practicing your profession.
If you have employees, you’re legally required to cover them with Massachusetts worker’s compensation insurance. This pays for medical expenses, lost wages, and ongoing care in the event one of your employees is injured on the job.
Every business earning income in Massachusetts is required to pay state taxes. If you owe over $400 in state taxes, you’re required to pay that amount in quarterly installments.
Wondering how to get started? Check out How to Pay Income Tax in Every State as a Therapist.
If you started your therapy practice in a different state, and you’re moving to Massachusetts—or if you operate in Massachusetts, and you’re planning to move to a different state—you’ll need to figure out how to pay taxes in multiple states.
The rules vary depending on which states you operate in over the course of the year, and how long you spend in each. Check out how moving to a different state impacts your taxes as a therapist.
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Want to learn more? Check out our guide on how to start a therapy practice.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Bryce Warnes is a West Coast writer specializing in small business finances.
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To start a therapy practice in Illinois, follow these seven steps:
If you’re moving your practice from a different state, there’s an eighth step you’ll need to follow: Figuring out how to pay taxes in multiple states.
This article covers the bare essentials needed to get your therapy practice up and running in the Prairie State. For advice on budgeting, marketing your practice, and billing your clients, check out our general guide, How to Start a Therapy Practice.
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Illinois boasts 102 counties and 1,300 municipalities. Before you settle on a location for your therapy practice—even if that location is your own home—you must make sure the local zoning allows you to operate there.
In cases where you aren’t typically allowed to operate a business in a certain area—for instance, a home business in a residential area—you can apply for a zoning variance. A variance is more or less an exception to zoning laws.
For information on whether you need to apply for a variance, what types of zoning your town or city recognizes, and what kind of business you can perform there, contact your local municipality.
If your therapy practice is a sole proprietorship or general partnership, and you intend to operate under a name different from your own or your partners’ (respectively), you’ll need to register an assumed name.
Assumed names for sole props and partnerships are registered at the county level. Contact your county clerk’s office for details.
Before registering, you’re required to run an announcement of your new name in a newspaper published in your county. The county clerk’s office will provide you with a list of eligible papers.
The newspaper will provide you with an affidavit confirming your announcement ran, which you will provide when you register your name with the county clerk’s office.
Each state recognizes—and registers—different business structures (aka “entity types”). Your practice’s business structure affects how its income is taxed and who may own shares of the practice.
In Illinois, the business structures you can choose from are:
*Licensed professionals in the State of Illinois—including most therapists—who wish to incorporate may choose to form professional corporations.
**Licensed professionals in the State of Illinois—including most therapists—who wish to form limited liability companies (LLCs) must now form PLLCs. Learn more about this recent change.
This list is just an introduction. Before settling on a business structure, talk to your accountant—and, if necessary, a lawyer—for help choosing the right one.
For more information, check out our article How to Choose a Business Entity for Your Therapy Practice.
When you go into business for yourself, you’re considered a sole proprietor by default. As a sole proprietorship, your business is identical with your person: All revenue is your revenue, all losses are your losses.
Sole proprietorships are the simplest form of business structure, but offer nothing in the way of legal or financial protection.
In a general partnership, all members are general partners—meaning, they all share legal and financial liability equally.
A profit corporation is a typical corporation as we know it: It exists separately from its owners, who own shares in it. There are two types: C corporations and S corporations. C corporations may elect S corporation status by filing IRS Form 2553.
C corporations have their income taxed separately from the income of the shareholders. S corporations pass on the tax liability to each shareholder. (For a variety of reasons, Heard recommends its clients form S corporations at the federal level.)
Those practicing professions in the state of Illinois may choose to form professional service corporations. A professional service corporation functions like a business corporation, with added protections in case a shareholder is sued for malpractice. All shareholders in a professional service corporation must be licensed and practicing the same professions.
The LLC business structure offers liability protection similar to a corporation, but with the option to be taxed in different ways. Your accountant may recommend you elect to be taxed as either an S corporation or a partnership.
The PLLC business structure is identical to the LLC, except for the fact that every member must be a professional licensed by the State, and provide proof of certification when the PLLC files its articles of formation with the Secretary of State. Therapists qualify as professionals licensed by the state.
The PLLC business structure provides extra liability protection for all members in case of legal proceedings brought against the organization (eg. a patient suing for malpractice.)
A limited partnership offers some liability protection for some of its members. To operate as a limited partnership, at least one individual acts as a general partner, who heads the company and makes major decisions, while at least one other individual acts as a limited partner, who does not.
General partners have unlimited liability—they are personally liable for the partnership’s debts, legal proceedings, and so on. Limited partners are only liable for their controlling share of the partnership.
An LLP is similar to a general partnership, but with extra protections; it’s typically favored by professionals like lawyers and accountants, but any professional licensed with the state (including therapists) may form an LLP. You can think of an LLP as the “professional version” of a general partnership.
The LLP structure protects each partner against outcomes of the other partners’ professional negligence. For instance, if one partner in an LLP is sued by a client, the other partners are not liable.
The LLLP business structure is very similar to an LLP business structure. The main difference is that existing general partnerships may choose to register as LLPs, while existing limited partnerships may choose to register as LLLPs.
To register your business in Illinois, you need to do two things:
The fastest and easiest way to register your business in Illinois and pay associated fees is to do so online. However, some business structures—including partnerships—must register by mail or in person.
Here’s a breakdown for each of the business structures covered in section 3 above.
Filing fees: No cost to form, fees apply to register an assumed name
Unlike in many states, in Illinois, you are required to register your sole proprietorship in order to do business. To register your sole prop, follow the onscreen instructions to file REG-1 on MyTax Illinois.
Filing fees: No cost to form, fees apply to register an assumed name
Unlike in many states, in Illinois, you are required to register your general partnership in order to do business. To register your general partnership, follow the onscreen instructions to file REG-1 on MyTax Illinois.
Filing fees: $150 to file Articles of Incorporation
Once you’ve incorporated in Illinois, you can elect S corporation status by filing IRS Form 2553.
Filing fees: $150 to file Articles of Organization
Filing fees: $150 to file a Certificate of Limited Partnership
Filing fees: $150 to file a Statement of Qualification
Filing fees: $150 to file a Certificate of Limited Partnership
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To operate in Illinois, your therapy practice may require licenses or permits. These are handled at the federal, state, and local levels.
Luckily, therapy practices do not need any special federal permits or licenses to operate in Illinois. And, outside of standard licensure for mental health practitioners, they also do not require permitting or licensing at the state level.
At the local level—meaning your municipality (town, city, etc.), you may be required to purchase a business license to operate. Contact your local permitting office for details.
The following types of business insurance are highly recommended for therapy practices operating in Illinois:
While shopping for insurance, look for a business owner’s policy (BOP). A BOP typically includes the three core types of insurance coverage: general liability, commercial property, and business income.
General liability insurance protects you in case of any damages you cause to someone else’s property or person. Since the State of Illinois puts no cap on liability lawsuit rewards, it’s important to make sure you’re well-covered. Aim for at least $1 million coverage.
Commercial property insurance protects property your therapy practice owns, like computers, business phones, or office furniture. It also protects the building where you operate, whether owned or rented.
Business income insurance covers you for loss of income due to specific circumstances. These include natural disasters, such as fire or storm damage; and man-made disasters, like theft.
Professional liability insurance covers you in case you are sued for libel or slander, for mishandling patient records, for providing inaccurate advice, or for otherwise causing harm in the process of practicing your profession.
If you have employees, you’re legally required to cover them with Illinois worker’s compensation insurance. This pays for medical expenses, lost wages, and ongoing care in the event one of your employees is injured on the job.
Every business earning income in Illinois is required to pay state taxes. If you owe over $1,000 in state taxes, you’re required to pay that amount in quarterly installments.
Wondering how to get started? Check out How to Pay Income Tax in Every State as a Therapist.
If you started your therapy practice in a different state, and you’re moving to Illinois—or if you operate in Illinois, and you’re planning to move to a different state—you’ll need to figure out how to pay taxes in multiple states.
The rules vary depending on which states you operate in over the course of the year, and how long you spend in each. Check out how moving to a different state impacts your taxes as a therapist.
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Want to learn more? Check out our guide on how to start a therapy practice.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Bryce Warnes is a West Coast writer specializing in small business finances.
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To start a therapy practice in North Carolina, follow these seven steps:
If you’re moving your practice from a different state, there’s an eighth step you’ll need to follow: Figuring out how to pay taxes in multiple states.
This article covers the bare essentials needed to get your therapy practice up and running in the Tar Heel State. For advice on budgeting, marketing your practice, and billing your clients, check out our general guide, How to Start a Therapy Practice.
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North Carolina boasts 100 counties and 532 municipalities. Before you settle on a location for your therapy practice—even if that location is your own home—you must make sure the local zoning allows you to operate there.
In cases where you aren’t typically allowed to operate a business in a certain area—for instance, a home business in a residential area—you can apply for a zoning variance. A variance is more or less an exception to zoning laws.
For information on whether you need to apply for a variance, what types of zoning your town or city recognizes, and what kind of business you can perform there, contact your local municipality.
If your therapy practice is a sole proprietorship, general partnership, or limited partnership, and you intend to do business other than your own (or yours and your partners’), you’re required by law to register an assumed name in North Carolina.
Here’s a step-by-step guide:
Each state recognizes—and registers—different business structures (aka “entity types”). Your practice’s business structure affects how its income is taxed and who may own shares of the practice.
In North Carolina, the business structures you can choose from are:
*Only individuals working in regulated professions—including mental healthcare workers—may be members or shareholders.
For a side-by-side comparison, see North Carolina Secretary of State’s business structure comparison chart.
This list is just an introduction. Before settling on a business structure, talk to your accountant—and, if necessary, a lawyer—for help choosing the right one.
For more information, check out our article How to Choose a Business Entity for Your Therapy Practice.
When you go into business for yourself, you’re considered a sole proprietor by default. As a sole proprietorship, your business is identical with your person: all revenue is your revenue, all losses are your losses.
Sole proprietorships are the simplest form of business structure, but offer nothing in the way of legal or financial protection.
In a general partnership, all members are general partners—meaning, they all share legal and financial liability equally.
A profit corporation is a typical corporation as we know it: It exists separately from its owners, who own shares in it. There are two types: C corporations and S corporations. C corporations may elect S corporation status by filing IRS Form 2553.
C corporations have their income taxed separately from the income of the shareholders. S corporations pass on the tax liability to each shareholder. (For a variety of reasons, Heard recommends its clients form S corporations at the federal level.)
Those practicing professions in the state of North Carolina are typically required to form professional service corporations. A professional service corporation functions like a business corporation, with added protections in case a shareholder is sued for malpractice. All shareholders in a professional service corporation must be licensed and practicing the same professions.
The LLC business structure offers liability protection similar to a corporation, but with the option to be taxed in different ways. Your accountant may recommend you elect to be taxed as either an S corporation or a partnership.
The PLLC business structure is identical to the LLC, except for the fact that every member must be a professional licensed by the State, and provide proof of certification when the PLLC files its articles of formation with the Secretary of State. Therapists qualify as professionals licensed by the state.
The PLLC business structure provides extra liability protection for all members in case of legal proceedings brought against the organization (eg. a patient suing for malpractice.)
A limited partnership offers some liability protection for some of its members. To operate as a limited partnership, at least one individual acts as a general partner, who heads the company and makes major decisions, while at least one other individual acts as a limited partner, who does not.
General partners have unlimited liability—they are personally liable for the partnership’s debts, legal proceedings, and so on. Limited partners are only liable for their controlling share of the partnership.
An LLP is similar to a general partnership, but with extra protections; it’s typically favored by professionals like lawyers and accountants, but any professional licensed with the state (including therapists) may form an LLP. You can think of an LLP as the “professional version” of a general partnership.
The LLP structure protects each partner against outcomes of the other partners’ professional negligence. For instance, if one partner in an LLP is sued by a client, the other partners are not liable.
The LLLP business structure is very similar to an LLP business structure. The main difference is that existing general partnerships may choose to register as LLPs, while existing limited partnerships may choose to register as LLLPs.
To register your business in North Carolina, you need to do two things:
The fastest and easiest way to register your business in North Carolina and pay associated fees is to log on the Secretary of State’s online filing service and follow the onscreen prompts. The Secretary of State provides a 10 minute video tutorial.
Here’s a breakdown for each of the business structures covered in section 3 above.
Filing fees: No cost to form, fees apply to register an assumed name
Aside from the optional step of registering an assumed name, there are no extra steps you need to take in order to form a sole proprietorship in North Carolina.
Filing fees: No cost to form, fees apply to register an assumed name
Aside from registering an assumed name, there are no extra steps you need to take in order to form a general partnership in North Carolina. Consider drafting a partnership agreement in order to easily resolve any future disputes between partners.
Filing fees: $125 to file Articles of Incorporation
Once you’ve incorporated in North Carolina, you can elect S corporation status by filing IRS Form 2553.
Filing fees: $125 to file Articles of Organization
Filing fees: $50 to file an Amendment to the Articles of Organization, converting an LLC to a PLLC
Filing fees: $50 to file a Certificate of Limited Partnership
Filing fees: $125 to file an Application for Registration of a Limited Liability Partnership
Filing fees: $125 to file a Certificate of Limited Partnership with the option to file as an LLLP
Note: In order to register an LLLP in North Carolina, you must file as an LP, and select the option to register as an LLLP (Section 11 on the print application.)
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To operate in North Carolina, your therapy practice may require licenses or permits. These are handled at the federal, state, and local levels.
Luckily, therapy practices do not need any special federal permits or licenses to operate in North Carolina. And, outside of standard licensure for mental health practitioners, they also do not require permitting or licensing at the state level.
At the local level—meaning your municipality (town, city, etc.), you may be required to purchase a business license to operate. Contact your local permitting office for details.
The following types of business insurance are highly recommended for therapy practices operating in North Carolina:
While shopping for insurance, look for a business owner’s policy (BOP). A BOP typically includes the three core types of insurance coverage: general liability, commercial property, and business income.
General liability insurance protects you in case of any damages you cause to someone else’s property or person. Since the State of North Carolina puts no cap on liability lawsuit rewards, it’s important to make sure you’re well-covered. Aim for at least $1 million coverage.
Commercial property insurance protects property your therapy practice owns, like computers, business phones, or office furniture. It also protects the building where you operate, whether owned or rented.
Business income insurance covers you for loss of income due to specific circumstances. These include natural disasters, such as fire or storm damage; and man-made disasters, like theft.
Professional liability insurance covers you in case you are sued for libel or slander, for mishandling patient records, for providing inaccurate advice, or for otherwise causing harm in the process of practicing your profession.
If you have employees, you’re legally required to cover them with North Carolina worker’s compensation insurance. This pays for medical expenses, lost wages, and ongoing care in the event one of your employees is injured on the job.
Every business earning income in North Carolina is required to pay state taxes. If you owe over $1,000 in state taxes, you’re required to pay that amount in quarterly installments.
Wondering how to get started? Check out How to Pay Income Tax in Every State as a Therapist.
If you started your therapy practice in a different state, and you’re moving to North Carolina—or if you operate in North Carolina, and you’re planning to move to a different state—you’ll need to figure out how to pay taxes in multiple states.
The rules vary depending on which states you operate in over the course of the year, and how long you spend in each. Check out how moving to a different state impacts your taxes as a therapist.
—
Want to learn more? Check out our guide on how to start a therapy practice.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Bryce Warnes is a West Coast writer specializing in small business finances.
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We offer two annual plan options for solo and group practices, billed monthly or annually.
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