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Why is Bookkeeping Important for Therapists?

Have you ever wondered about the difference between handing everything off to your CPA once a year to do your taxes and tracking your income and expenses throughout the year using a bookkeeping system? 

Typically, a relationship with your CPA is one in which you only provide year-end statements. It tends to be transactional, where a conversation hardly occurs, and there’s no valuable information obtained from the numbers. The biggest (or only) result from this process is checking off tax filing from your to-do list.

Many therapists block off an entire weekend in April before taxes are due to search for receipts and calculate the totals for each category of their expenses. This tends to be a very stressful and overwhelming experience.


Doing your own therapy practice finances doesn’t need to be stressful

It doesn’t need to be this way. A simple, organized, and ongoing bookkeeping system to track your therapy practice finances can not only result in a very smooth tax season, but it also has benefits throughout the year. 

In this article, we’re going to cover five benefits of bookkeeping for self-employed therapists. 

Bookkeeping gives you an inside view of how you’re managing your practice finances

Self-employed therapists, and business owners in general, tend to overestimate their income and underestimate their expenses. That gray area of not knowing actual numbers might work every now and then, but is not sustainable long term.

Tracking your income and your expenses as a business owner gives you a front-row view of how you and/or your team have managed your money.

In other words, you have access and control to how your money moves. With a simple and efficient bookkeeping system, you can stay on top of this “movement” on a consistent basis instead of being surprised by it whenever you look at your bank account. 

Similarly, this will remove the pressure from your shoulders to know what’s going on in your bank account off the top of your head, and expect yourself to know if the current balance is your profit or if it’s been earmarked for something else. 

Bookkeeping impacts your personal finances

Business finances and personal finances go hand in hand, especially if you’re taxed as a sole proprietor. If you’re reading this, chances are the income from your therapy practice feeds some or most of your personal finances. 

So how do they compliment each other? Let’s look at two ways in which this can occur.

First, having “messy” numbers in your business will feel very uncomfortable if you are very organized in your personal finances, or vice versa. Therefore, implementing a simple and organized system on one side will trickle down to the other, creating a massive positive impact.

Second, clarity on one side will bring clarity to the other side. For example, keeping clear bookkeeping records in your practice will help you see how much money you can pay yourself. This will provide your personal finances budget with a clear starting point for the month or year, and can help you plan ahead. 


Bookkeeping helps you prepare for taxes

Taxes are one of the most burdensome aspects of running a business. When you were an employee, your employer took care of those taxes for you on every paycheck. Now as a business owner, the responsibility lies on your shoulders.

But it doesn’t have to be a nightmare! A good financial report in combination with a conversation with your tax professional throughout the year is what you need to stay on top of those estimated payments, local tax, and what to expect during tax season every April.

For example, if your tax professional tells you that based on your whole financial situation, you should expect to set aside 30% for taxes from your private practice, then you can look at your profit and loss (P&L) statement for a specific period and multiply the net income by 30%. 

Bookkeeping supports your growth process

Whether you want to stay as a solo practitioner forever, or grow into a large group practice, you’ll need a vision and a clear path to get there. The numbers in your financial reports can help create and map out your journey. 

For example, knowing how much you need every month to keep the lights on can help you figure out your savings goal before you make a big change, or help you project your expenses at a larger place, or help you see how much more you should make in order to increase your own pay.

Additionally, if you’re working with a business coach, financial advisor, or a similar professional, showing up with your numbers will help them help you more effectively. 

Bookkeeping improves your financial and admin workflows

Your bookkeeping is not an isolated area of your business. Regardless of how you choose to track your finances, this process will bring attention to your entire workflow and systems. 

This focus will potentially help you catch areas that are underperforming, or connect you with the right technology or people that can make things even better. 

For example, privacy is a very important factor in your operations. By working with a bookkeeper who is familiar with therapists, you will likely find out that third party apps like Paypal or Zelle are not meant to be used to receive payments from therapy clients since they’re not HIPAA-compliant.

If you feel like your finances are simple, then a simple system will suffice. Heard, or another similar service, are great options for therapists that don’t need to hire someone full time for this task, but also want the support and help from an expert. 

As with everything else in your business, bookkeeping will provide you the most benefits if it’s tailored to you and your needs, and if you’re spending time with those numbers trying to connect the dots between them and your business. 


Read more about the difference between an accountant and a bookkeeper.

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.

Andrea is a bookkeeper and the owner of Liquid Cents Bookkeeping. She supports women business owners who want to build wealth and whose mission is to help others. She lives with her husband and kids in South Florida.

The Complete Guide to Out-of-Network Billing for Therapists

This article is co-authored by Mentaya

When starting a therapy practice, therapists are faced with the question: Will I or will I not take insurance?

This decision boils down to three main options: 

  1. Go in-network: get paneled with insurance companies, either through a company like Alma or on your own.
  2. Go out-of-network: only accept private pay clients.
  3. A mix: Go in-network with some insurances and take some private pay clients as well. 

In this article we will talk about what it means to be an out-of-network provider (options 2 and 3). 

Specifically we will:

  • Explore reasons why some therapists choose this path.
  • Explain how out of network billing works.
  • Highlight resources available to out of network providers. 
  • Provide you with an extensive glossary of insurance terms.

What is an out-of-network provider? 

An out-of-network provider is not part of any insurance panels and they set their own fees. This is also called “private pay,” “cash pay,” or sometimes “fee-for-service.”

What a lot of people don’t know is that most preferred provider organization (PPO), point-of-service (POS), and high-deductible health (HDHP) plans have both in-network and out-of-network benefits. This means that even though you are out of network, many of your clients may be able to get reimbursed for therapy from their insurance company. 

Why do therapists choose to be an out-of-network provider? 

Top three reasons why therapists choose to be an out of network provider: 

  1. More flexibility: You can choose your clients and run your practice the way you want – it is not controlled by insurance.
  2. Higher pay: Out-of-network providers can charge their full fee and avoid insurance companies taking a hefty cut of their pay. 
  3. More time: Being out-of-network, you can avoid time consuming administrative tasks and paperwork required by insurance companies. 

How do therapy clients typically get reimbursed for out-of-network therapy? 

1. Client verifies their insurance benefits.

Clients often don’t know that their insurance plans may cover out-of-network services, despite them actively paying for these benefits. 

To determine whether their insurance plan includes out-of-network benefits, and how much they can expect to get reimbursed, clients can reach out to their insurance company directly. Though this is not a difficult process, many clients never get around to making the call. As a result they may opt to go with an in-network therapy provider. Unfortunately, since there is such a high demand for therapists, this may result in waiting on long waitlists, or going with a therapist that is not a good match for the client.   

A growing number of therapists are using online resources, like Mentaya's benefits checker, to confirm how much clients can expect to be reimbursed by insurance. One provider explained: “I let my clients know I charge $200 per session and I don’t take insurance, but I do work with a platform that gets clients reimbursed. I let them know most of my clients get 70% of sessions reimbursed.”  

For those with out-of-network benefits, reimbursements can range from 40-80% of therapy costs, significantly reducing session costs to a level comparable to a co-pay. 

As highlighted by Mentaya’s benefits checker above, based on the provider’s session fee and their client’s remaining out-of-network deductible you can calculate how many sessions need to occur before the client will start to get reimbursed. 

2. Therapists provide a superbill.

Clients need to submit a superbill or claim to their insurance company for therapy reimbursement. A superbill is a document that includes all necessary information required by insurance companies to process reimbursement for the services provided. 

To generate a superbill, therapists can use their Electronic Health Record (EHR) software or create a template with the client's name, date of service, therapist's name and credentials (including their Tax ID or NPI number), diagnosis codes (ICD-10 codes), treatment codes (CPT codes), and fees charged for each service.

3. Client submits a superbill.

Clients will then submit the superbill to their insurance, either by uploading it directly to their insurance website or by mailing it. Sometimes the insurance company may not approve the superbill due to missing or incorrect information, insufficient documentation, or exceeding coverage limitations.

If done correctly, utilizing out-of-network benefits can serve as a bridge between in-network and out-of-network therapy, reducing the client's net costs while still allowing the therapist to get paid their full fee. 

However, why does this still sound like so much work? Afterall, as an out of network provider you have ultimately made the decision to distance yourself from insurance companies. 

How to remove the frustration of dealing with insurance: 

While it seems like a happy middle ground, all the insurance paperwork and responsibility is handed over to the client, who might not have the motivation, resources, and/or knowledge to complete the process properly.

Fortunately, companies like Mentaya exist to make the process easier, for both the therapist and their clients. They handle everything from instantly verifying benefits to automatically submitting claims, which helps therapists who want to be private pay, while saving clients up to 80% on therapy.

Outsourcing ways to help clients through companies like Mentaya can go a long way.

Nuts and bolts: key insurance terms 

Here are some important insurance terms that therapists should be familiar with to help their clients understand what they mean.

Deductible: This is the amount a person has to pay out-of-pocket for health services before their insurance benefits kick in.

Premium: This is the amount a person pays every month for their insurance plan.

Out-of-pocket max: This is the maximum amount a person has to pay with their own money for covered healthcare services. Once this maximum is reached, the insurance company pays for 100% of all covered costs for the rest of the year. Deductibles, co-insurance, and co-payments count towards this maximum, but plan premiums and out-of-network care and services do not.

Co-payments: This is the amount a person pays for their health services. For example, if a session costs $100 and a person's deductible has already been paid, their co-pay may be only $20 for the visit.

Co-insurance: Basically, the same as co-payments but instead of a fixed dollar amount, it is the percentage of that amount. For example, if a session costs $100 and a person has a coinsurance rate of 20% after meeting their deductible, they would pay $20 for the session.

Superbill and claims: A superbill is a document that generates a claim to prove to the insurance company that services were necessary. A therapist can provide a superbill to their client, who can then file the claim with their insurance company.

Reimbursement: Insurance includes reimbursement policies in which a person may pay out of pocket for a service, but can receive money back after submitting a claim. Plans differ on their reimbursement policies, so it's important for clients to understand their individual benefits.

Allowable amount: This is the maximum amount an insurance company will pay for a specific healthcare service. Can also be known as eligible expense, payment allowance, or negotiated rate. 

Timely filing limit: Another way to say the deadline for submitting a claim to an insurance company for reimbursement of a covered healthcare service. The time limit varies from 90-365 days, depending on the insurance plan. 


Mentaya helps therapists attract and keep more private pay clients, while being a part of making mental healthcare more accessible. No paperwork, just meaningful work. Use the code HEARD for a 30-day free trial. 

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.

Announcing the 2023 Financial State of Private Practice Report

In February of 2023, we conducted an online survey of therapists in order to learn more about trends in private practice finances. Over 1,200 self-employed therapists from across the US responded.

The 16 questions on our survey had to do with income and expenses, education and licensing, insurance reimbursement rates, economic anxieties, and other factors affecting the everyday operations of private practices in 2022.

The information we gathered provides a glimpse into the challenges and opportunities facing self-employed therapists today.


Here are some highlights.

The cost of living and the cost of therapy don’t necessarily correlate

Differences in the cost of living in the five states for which we gathered the most information—California, New York, Florida, Texas, and Colorado—did not have a predictable effect on private pay rates. In fact, in New York—the second most expensive place to live in the country—a quarter of therapists charged rates below $100 per hour.

After rent, dues and subscriptions are the biggest expense for therapists

While 27.8% of respondents told us rent was their biggest expense in 2022, dues and fees were a close second at 23.5%. If more therapists continue to move from offices to home-based telehealth practices, we may see the cost of rent take a backseat when it comes to expenses.

For therapists, higher revenue does not mean bigger expenses

Well over a third of therapists (42.3%) reported they spent less than $25,000 on business expenses in 2022, while 13.9% spent $25,000 – $50,000. A glance at the data shows therapists in a range of income brackets—from under $50,000 per year to over $200,000—reporting expenses of less than $25,000. The rise of telehealth and diminishing reliance on traditional offices may be part of the reason for these low business expenses.

Most therapists who take insurance are reimbursed less than $150 per hour

In total, 77.1% of respondents said they accepted insurance in 2022. The majority were reimbursed less than $150 per hour. Of those, nearly a quarter (23.9%) were reimbursed less than $100 per hour. The five insurance companies respondents most commonly paneled with were Cigna, Aetna, BCBS, United, and Anthem.

Therapists are worried about the economy and most plan to raise their rates in 2023

A little over half of respondents said they were somewhat worried or very worried about how the economy would impact their practice in 2023, and 63.5% of respondents overall said they plan to raise their rates in 2023.

When it comes to financial literacy, there’s room to grow

Some therapists struggle with day-to-day accounting and bookkeeping. When asked, 9.3% of respondents said they didn’t know what their biggest business expense was, and 12.4% failed to consistently pay quarterly taxes. 

With the future health of the economy no more certain in 2023 than it was in 2022, and the majority of respondents worrying about its impact on their practices, good accounting and bookkeeping are more important than ever.


Want to read the whole report? Download the Heard 2023 Financial State of Private Practice Report.

Should Therapists Have a Separate Business for Other Income Streams?

If you’re a self-employed therapist with multiple income streams, you may benefit from splitting them into separate businesses. 

It typically makes bookkeeping and tax filing more straightforward. Creating separate companies can also prevent one income stream’s debt or financial liabilities from crossing over to and affecting the others.

Here’s everything you need to know about separating your income streams as a therapist, and how to choose the best approach for your type of practice.


What is an income stream?

An income stream is a category you sort your income into for the purpose of bookkeeping. The more streams you separate your income into, the more insight you have into how your business is performing.

You can check out our complete list of income streams for therapy practices for a full breakdown, but here’s an abbreviated version.

  • Therapy
  • Individual therapy
  • Couples therapy
  • Family therapy
  • Group therapy
  • Coaching
  • Life coaching
  • Business coaching
  • Executive coaching
  • Couples coaching
  • Supervision
  • Case consultation
  • Clinical assessment / evaluation
  • Consulting
  • Writing
  • Speaking
  • Teaching
  • Clinical training
  • Selling info products
  • Masterminds / cohort-based courses
  • Memberships / paid communities
  • Brand partnerships / influencer marketing
  • Podcast ads
  • YouTube ads

For most therapy practices—and most businesses in general—income streams can be broken up into four categories.

  • Service revenue. Fees you collect for providing a service to a client. In the context as therapy, this includes seeing patients on a regular, one-on-one basis.
  • Transaction revenue. One-time transactions, such as revenue from selling online courses or ebooks.
  • Project revenue. Money you earn by completing a project for a client. One example might be providing a six week coaching workshop for an organization.
  • Recurring revenue. Regular payments made on a set schedule, such as rental fees you collect for subletting your office to another therapist.

Why separate income streams into different businesses?

It’s possible to have a broad range of income streams—for instance, individual therapy, consulting and training, and running a YouTube channel for ad revenue—and lump them all together under a single business structure.

With careful bookkeeping and tax filing, you can track all the revenue and expenses for each income stream, and effectively run each one as an unofficial mini business within your own sole proprietorship or LLC.

But there are drawbacks to this approach:

  • It’s easy to make mistakes. When you have a dozen categories for revenue, for instance, you have a dozen opportunities to make a mistake when you categorize it. That can muddy the waters, and make it difficult to track how each income stream is performing.
  • It makes tax filing more complicated. Reporting a large number of different expense categories on your Schedule C, filing Form 1099s for contractors who provided services for different parts of your business in different capacities, and getting all your sources of income tidied into a neat pile—it makes for complicated tax filing, and could lead to headaches for both you and your accountant
  • All your businesses share liability. All your different income streams are in the same boat, and if it starts to sink, they all sink together. Meaning, any legal or financial liability you carry as one part of your business affects all the others. For instance, if you decide to quit doing in-person therapy sessions and break the lease on your office, you’ll be using income from all your other income streams to cover the cost.
  • You may blur the lines when it comes to licensing. Many therapists offer therapy in the states where they are licensed as therapists, but provide business or life coaching—which typically does not require a license—to out-of-state clients. So long as therapy and coaching services are each offered by different businesses—both owned by the therapist—there should be no issues. But if they’re both provided under the same business name by the same therapist, it could lead to issues with the  licensing authority.

In contrast, when you separate different income streams into different businesses, you benefit:

  • Organization is simpler. Each business has its own general ledger and its own bank account. There’s much less chance of crossover between different income streams.
  • Tax filing is more straightforward. If you have three distinct income streams, it may be easier to file three simple tax returns than one complicated one.
  • Your businesses don’t share liability. If one of your income streams carries debt or other liabilities, it’s typically limited to that particular business—it won’t affect your other ventures.
  • You’re less likely to attract scrutiny from licensing boards. Keeping licensed and unlicensed business activities separate may save you from inquiries or even possible legal troubles.

There can be drawbacks to creating separate businesses, however. Depending on your state, you may have to pay considerable fees to create multiple LLCs and renew them year after year. It also takes an investment in time and energy to get them off the ground.

Before you begin the process of creating separate businesses for your income streams, consult with an accountant.

Separating therapist income streams while remaining a sole proprietorship

If your therapy practice is a sole proprietorship, you can separate your income streams into different businesses without registering multiple LLCs or other business structures.

Here’s how. For each income stream you’d like to turn into a business:

  1. Register a business name (a fictitious business name or DBA). This is done at the county or state level.
  2. Register an employer insurance number (EIN).
  3. Open a business checking account.
  4. Create a general ledger—or have your bookkeeper create one for you—and use it to record all your revenue and expenses for the business.
  5. At tax time, file a separate Schedule C for the business.

When you file your taxes, you’ll report your total income on Form 1040, and file a separate Schedule C for each income stream you’ve converted into a business.

Technically, these income streams aren’t separate businesses recognized by your state or the IRS. But having a different bank account and general ledger for each one allows you to separate their bookkeeping, so it’s easier to stay organized. And having a different DBA for each business lets you make each one distinct in the eyes of the public.

Some drawbacks to this method:

  • You don’t get liability protection. All your businesses still fall under the umbrella of your sole proprietorship.
  • It may not help you in case of a licensing dispute. If you’re separating your income streams for the sake of separating licensed and unlicensed work, the multiple businesses you run under the umbrella of your sole proprietorship may not be enough to convince licensing authorities your licensed and unlicensed income streams are distinct from one another.

While it’s more expensive and more time consuming, registering multiple LLCs for your multiple income streams may offer you more legal and financial protection.


Separating therapist income streams as an LLC or LLCs

There are three ways you can separate your income streams using the LLC business structure:

  1. By forming a single LLC with different DBAs, EINs, bank accounts, etc. for each income stream.
  2. By forming a separate LLC for each income stream.
  3. By forming a series LLC, under which each income stream is a series or sub-LLCs.

The cost of forming an LLC varies according to state—from $50 to some states, to $800 in California. Annual renewal fees range from $0 to $800 (California again), and the rules vary when it comes to filing annual information reports with the State. 

Given the potential cost and paperwork involved, it’s best to consult with your accountant before registering multiple LLCs.

Here’s more detail on each method of separating your income streams with the LLC business structure.

Forming a single LLC

It’s possible to form a single LLC under which all your different income streams operate, each with its own bank account, general ledger, and business name.

The drawbacks to this method are identical to the drawbacks of using the sole proprietorship method covered above, with one crucial difference: creating an LLC for your business protects your personal assets.

Once your therapy practice becomes a registered LLC, it’s a separate entity from your person. Meaning, debts and legal proceedings affecting your business typically won’t affect your personal finances directly.

Your degree of liability can vary according to which state your LLC is registered in, and what types of proceedings are brought against you. But it offers better protection, liability-wise, than a sole proprietorship.

Forming separate, multiple LLCs

One of the most common approaches taken to separating lines of revenue is forming multiple LLCs. 

Each line of revenue exists as its own business in the eyes of your state and the IRS. That means it:

  • Files its own taxes
  • Files its own Articles of Organizations
  • Keeps its own financial records
  • Has its own EIN and bank account

Accountants often recommend business owners with multiple businesses form a single parent LLC to act as a holding company for all the other LLCs the business owner runs. This makes recordkeeping, bookkeeping, and tax filing more complex, but may have benefits when it comes to overall organization.

While forming multiple LLCs is far superior to running multiple businesses under a single LLC, it comes with drawbacks:

  • Cost and time involved. Filing Articles of Organization and maintaining financial records for each LLC is time-consuming. And when you’re forming multiple LLCs, the filing and renewal fees can add up.
  • You can still be sued. If someone sues your parent LLC, the assets of all the LLCs it encompasses are on the line.


One more note: Many states require therapists register their LLCs as professional limited liability companies (PLLCs), a business structure that provides professionals like doctors, attorneys, and therapists added liability protection. This requirement may affect how you organize your multiple businesses. An accountant can provide more information about PLLCs specific to your state.

Forming a series LLC

The series LLC combines a common way of organizing multiple LLCs—with a single parent LLC owning multiple LLCs under it—into one, single package. 

When you form a series LLC, you split it up into multiple sub-LLCs—or series—each of which is insulated from the others in terms of liability. It offers all the protections of forming multiple LLCs, while only requiring you to form one.

A series LLC only needs to file one tax return, which encompasses all the financial activities of its series. The IRS recommends filing separate tax returns for each series, however. 

Not all states recognize series LLCs. The ones that do are:

  • Alabama
  • Arkansas
  • Delaware
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Missouri
  • Montana
  • Nevada
  • North Dakota
  • Oklahoma
  • Puerto Rico
  • Tennessee
  • Texas
  • Utah
  • Virginia
  • Washington, D.C.
  • Wyoming

As usual, it’s best to consult with an accountant before making a final decision. 

Separating therapist income streams as a corporation

In most cases, it doesn’t make good financial sense to turn your multiple income streams into separate C corporations, or to form a holding corporation for multiple LLCs.

The cost of incorporating may be considerable, it means you’ll be taxed twice—once on corporate income, and once on the draw or salary you receive—and it introduces a variety of legal and financial complexities you can avoid by forming multiple LLCs or a series LLC.

If you want to avoid the issues created by forming a C corporation, but still share ownership of your business with partners or colleagues, your LLC can elect either partnership or S corporation status. Learn more about S corporations for therapy practices. 

The best way to separate income streams as a therapist

Generally speaking, the best method of separating your income streams as a therapist is by forming multiple LLCs.

The only time it may not be appropriate is if the income you earn from each income stream is so small that the cost of forming and maintaining an LLC for it would put you in the red. 

But, as always, individual circumstances vary, and there are variations from one state to the next in terms of how LLCs are managed. Be sure to consult with an accountant before taking the plunge.


Want to know how to register an LLC in your state? Check out our state-by-state startup guides for therapy practices.


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.

The Complete List of Income Streams for Therapists

When I first began my career as a therapist, the main stressors I faced came from the work itself: trying to meet client’s expectations, struggling to find community, and feeling varying degrees of self-doubt.

What surprised me, though, was just how quickly and intensely financial stress began to impact me.

This combination of professional and financial stress led me down the road of burnout and made me seriously reconsider my career choice. If my income was always going to be directly tied to how many clients I could see any given week, I doubted how long I would last in the field.

That’s when I started exploring how to develop other streams of income. I wasn’t the only one. In fact, Heard recently surveyed their audience on Twitter and more than half (53.8%) reported having more than one source of income.

As I learned more, the benefit of diversifying my work became abundantly clear: freedom.

Freedom from the weight and uncertainty of financial stress. Freedom from the heavy demands of a constant and overflowing caseload. Freedom from a broken system that makes you choose between serving marginalized populations and having financial security.

The first step toward that freedom is knowing what options for “side hustles” are available to you. Here we’ll cover the complete list of income streams available to therapists. You might find yourself overwhelmed with all of the choices available. That’s understandable.


How to select an income stream for therapists

I’d suggest you pick one that comes easiest for you. What skills do you already have that would be needed to succeed? Who is in your professional network that might be able to support, guide, or give you the push you need? What are you passionate about that you could envision yourself spending time exploring and learning more about?

Start with the path of least resistance and lean into your strengths.

A quick disclaimer: Always make sure you are operating with the ethical bounds and expectations of your licensing board. Proactively check whether any of these income streams might put your license at risk and always contact your board with questions. It’s better to be safe than sorry.

As I lack direct experience with some of these streams of income, I interviewed therapists who have years of experience and expertise with each of them. They’ll share how to get started, the challenges you may face, and the benefits waiting for you if you spend the time and energy investing in them.

Let’s dive in.


The first and most obvious stream of income is providing therapy. You can provide individual therapy, couples therapy, family therapy, or group therapy. One thing to financially consider is the varying compensation that comes with providing therapy with different payment structures (notably private pay vs. insurance), modalities, and settings.

For example, some insurance companies reimburse less for couples and family therapy compared to individual therapy. So, if you’re planning on strictly being a couples and family therapist, you may have to see more clients or charge more to earn the same income as someone who strictly sees individuals.

The other consideration here is the model of income you are being compensated by. If you are a salaried therapist then you have the stability and peace of mind of knowing what your paycheck will be week-to-week regardless of cancelations or no shows. 

However, if you work from what is sometimes referred to as the “production model,” you’ll often have the opportunity to earn more per client that you see than someone who is salaried, but you sacrifice the peace of mind of knowing what your paycheck will be week to week. 

If your clients no show, that’s lost income, depending on your policy. If you have a lot of clients under an insurance provider that doesn’t reimburse well, your income might suffer, too.

Even within providing therapy, there is a lot of variance around how much you can make and how many client’s you’ll have to see to get there. Heard has a great fee-setting calculator to help you play around with the numbers.


Coaching is a mix of teaching, motivating, and problem solving. It’s a great option for therapists because, in theory, you already possess the skills required to be a good coach. Dr. Alex Auerbach is a licensed counseling and sport psychologist and mental performance coach. “Mental health providers are uniquely qualified to offer coaching services at a level of quality and sophistication that’s hard to match,” he explains.

Technically, anyone can say they are a coach. There are certification programs you can complete to add credibility to your name, but that is not a necessity to get started. 

One of the biggest challenges to getting started as a coach is finding clients. It’s best practice to specify what specializations you offer as a coach. For example, Dr. Auerbach specifically coaches high performers such as athletes, executives, and musicians. 

Having a niche allows you to see clients within your scope of practice as well as build credibility in a specific topic. The more people know you as the go-to person, the easier it will be for you to market yourself as an authority figure.

It’s important to note here that you should never treat coaching as therapy. It is unethical to provide clients therapy under the guise of coaching and could result in you losing your license. Be upfront with your coaching clients that what you are providing is not therapy. 

If your coaching clients would like therapy, only provide this within the state(s) you are licensed in and always be direct with how therapy differs from coaching.



Providing supervision is a great way to diversify your schedule, increase your income, and give back to up-and-coming therapists.

The path to becoming a supervisor varies greatly depending on what license you have and what state you are in. Typically, you need a certain number of years experience and to complete training before you can become a certified supervisor.

With telehealth becoming more popular, the accessibility of being a supervisor has also greatly increased. Companies like Motivo help supervisees connect with supervisors online, reducing the geographic barrier for those hoping to add supervision as a stream of income. 

Case consultation

Case consultation involves consulting with other therapists on their difficult cases. Unlike supervision, consultation tends to focus solely on the cases therapists bring rather than their professional development. You can offer case consultation services to individuals, dyads, and even groups. 

Elizabeth Hinkle, LMFT offers case consultation. She says the biggest challenge of offering case consultation has been connecting with other clinicians looking for consulting because therapists haven't had many opportunities to advertise and connect formally for this purpose.

An accessible way to get started offering case consultation is offering free consultation to those you know. It can start as a group led consultation and a way to explore what you might offer for paid consultation in the future.

Once you have a specific topic that you would like to offer consultation for, go back to those you know and ask if they would be willing to write a testimonial if you offered free or discounted consultation.

After a month of consultation and a few testimonials, you can add your offer to your website or any therapy directories you are associated with. Having social proof from other therapists goes a long way in building credibility and trust before someone schedules with you.

Hinkle shares that offering case consultation is a wonderful way to continue your own growth as a therapist as well. “It provides an opportunity to think through decision-making, self-of-the-therapist, case conceptualization, and much more,” she adds.

Clinical assessment, evaluation, and testing

Offering clinical assessments is a great way to pad your schedule where there might normally be gaps. Any therapist can typically offer one time diagnostic assessments (DAs) which are often needed for folks looking to receive additional services and a heightened level of care. 

While DAs do mean additional paperwork, insurance typically reimburses higher for them which could give you the opportunity to see less recurring clients week to week.

Additionally, DAs tend to be less emotionally draining as they center around information gathering. This could be a simple and accessible way for you to reduce the emotional strain of your caseload.

In order to offer any higher level evaluations such as ADHD testing, ASD testing, and neuropsychological testing you need to have the necessary credentials. Dr. Amy Marschall offers higher level evaluations like these and says you typically need the psychologist license to do these kinds of assessments, but it varies state-to-state.

“It’s a great service to be able to offer," she says. “It's so needed and I constantly get referrals for folks who need testing.”

The two main challenges that come with offering clinical assessments are overhead and marketing. Dr. Marschall says she does some evaluations that cost $1,400 upfront. Others are lower startup costs, but you still have to purchase the score reports. For these, score reports often run $20-30 per administration, but many give a discount if you pre-purchase a certain amount up front. Again, bigger overhead cost, but it pays off in the long run.

Marketing is tricky sometimes because “psychological evaluation” is a broad term and psychologists often specialize within a couple specific types of evaluations. To try to mitigate confusion and frustration, Dr. Marschall says she communicates what her evaluations will help a potential client learn and, “if that's not the question they are trying to answer, then I'm not the right evaluator for them.”

The initial investment of becoming a psychologist is a lot between school and overhead costs, but there is incredible demand right now for clinical assessments and evaluations.



Once you have a certain level of expertise and experience with a specific population, theory, or diagnosis you can explore offering consulting services to other therapists, professionals, or companies.

Kenya Crawford, LMHC noticed a common complaint among her clients of color: workplace racism. “No matter how much support I provided, nothing could outweigh the daily microaggressions,” she says. “I started Kenya Crawford Consulting to disrupt workplace trauma before it got to my couch.”

For anyone interested in getting into consulting, Crawford suggests starting with what you are passionate and knowledgeable about. She also suggests starting with the connections you already have. “Share your desire to consult with your network and let them know you are taking on new clients,” she adds.

The barrier to entry here is a little higher because you need to demonstrate your expertise. That being said, you could make the case that as long as you are a few steps ahead of someone else, you could be considered an “expert.”

A specific challenge Crawford has faced is clients that don’t genuinely align with the work she does. “Since my work is centering on the healing of workplace racial trauma, there are a lot of companies hoping to check a box by working with me,” she explains. To prevent this, Crawford uses intakes and consultations to determine if they are the right fit and refer out if they are not.

As far as what has been most helpful for Crawford and her consulting business, she says, “Community! I have been fortunate to not need to spend a lot of money on marketing or advertising. My community has continuously sent clients my way and I am deeply grateful.”

Consulting is a great way for you to make further connections in your community, build credibility, and diversify your schedule.


Writing was the first income stream I explored. Writing is far more mentally taxing than emotionally taxing, which is what I was looking for. It’s a skill that still helps people and something I can master throughout my life.

The tricky part about writing is that earning income from it is far less a straightforward path. One option is to write articles for publications that offer pay for work. Many publications do not, but still offer exposure, which is helpful. 

Platforms like Medium are free to join and offer compensation depending on how many views your work gets. This is how Dr. Marina Harris got her start as a writer. “It was a great way to build a portfolio so I could submit to other places,” she explains. “I won a few awards that boosted my confidence, and I pitched to Psychology Today. So now I have my own blog housed there, and I've even had several of my articles selected to be in the magazine!”

Then there is the classic route: publishing a book. While this is understandably daunting, with the advent of eBooks and Amazon, self-publishing a book is as easy as it has ever been. 

Personally, I’ve started by writing on Twitter because that’s where my audience is. Starting a blog or writing for a publication often means you’re writing to a faceless void. You typically don’t reach many people and you’re not getting valuable feedback for what is and isn’t working. 

From Twitter, I refer my audience to my weekly newsletter. The newsletter is a longer form of writing that helps deepen trust with my audience. It’s also direct access to them for when I want to monetize: book, course, community, etc. Regardless if you want to be a professional writer or not, having a newsletter is an incredible tool to connect you with those you are looking to serve.

I’ve been viewing writing as a long series of iterations: developing my own writing style, connecting with an audience, and slowly building trust and authority. 

Dr. Harris shares this sentiment as well. “Writing is a very slow process and not always scalable, so if someone wants to get started with writing they should really love it. Otherwise it can feel like a slog,” she says.


Speaking is another great way to generate income as a mental health professional. Diamond James, LCSWA got started through the relationships she already had. “Because they know me and the work that I do, they either asked me directly to speak at one of their events or they have sent my information to someone else who's asked me to speak,” she explains. 

Start with the connections you have: your grad school or college, faith community, local AA. Offer to speak for free and see what people connect with. Once you’ve gotten some practice and have a topic you feel confident speaking about, then you can start charging for speaking engagements. 

Many therapists feel awkward or unsure of putting a price tag on their skillset. To that concern, James suggests to “build relationships with people in this field who do different types of work and don't be afraid to ask the questions that feel taboo.”

As therapists we’re constantly immersed in the therapy world and it’s easy to forget what a discrepancy in knowledge and experience there is between our field and the general public. Even if you’re relatively new to the field, you have valuable perspective and insight that people would be happy to pay for.

James, who is working her way to full licensure, speaks to her own experience of self-doubt. “On multiple occasions, I have been in my own head about not being enough or having enough insight to speak because I am provisionally licensed,” she says. She counteracts this by “reminding myself of this very truth: these individuals have asked me (sometimes on more than one occasion) because they also recognize I have something to offer these spaces.”

Speaking engagements are a great way to make connections, gain credibility, and build an audience.



Teaching opportunities tend to be available within colleges and graduate programs. Dr. Lindsay Snow, who has several years of experience teaching in both college and graduate school settings, suggests therapists start by looking for adjunct positions at local institutions.

“Colleges and universities post available adjunct positions online, so all it takes is a simple Google search to see what’s available and then applying,” she says. “I would encourage therapists to be open to unique opportunities in these settings, such as teaching in entirely online programs, teaching in applied counseling or psychology programs, or even teaching general psychology courses at the community college level.”

If you would like to start with less formal education, Dr. Snow recommends looking into community education opportunities. “Connecting to local schools, churches, non-profit organizations, or other community centers/clinics could be a great way to provide education and training on all kinds of specialized mental health topics,” she continues. “Networking to these organizations usually requires a few phone calls or emails as an initial introduction so you can begin building a relationship.”

As for the benefits of teaching, Dr. Snow highlights the difference in relationship with a client compared to a student. “While I believe wholeheartedly in the value of being myself as a therapist, the reality is that psychotherapy is not about me,” she adds. “As such, I enjoy attending to other facets of myself through teaching. Teaching is both mentally stimulating and relationally gratifying to me. It pushes me to think and speak more clearly about topics that I’m passionate about and that inform my clinical practice.”

That being said, teaching comes with its own set of challenges. Dr. Snow mentions that engaging an entire class of students, while fun and energizing at times, can also be a daunting task. Other tasks such as creating a syllabus, grading, and responding to emails also come with the job. 

Overall, teaching may be a great option for you if you enjoy integrating your clinical experience into a classroom setting. Teaching provides a great opportunity for you to channel your passion for the work itself into the next generation of therapists. 

Clinical training

If you’re interested in offering clinical training but are unsure where to start, Dr. Kevin Handley suggests “spending some time reflecting upon what you want to teach, who you want to teach, and why you want to teach. Knowing these things about yourself will direct your journey to finding opportunities to train others.”

Dr. Handley also speaks to the challenges he has faced in offering clinical training. “There are logistical challenges and mindset challenges,” he says. “Logistically, you have to figure out how to structure a training or course, find people willing to pay you to teach it, and find a face-to-face or online venue to conduct the training. If you are offering professional continuing education, then you also need a CE sponsor so that therapists can use our training for re-licensure.”

The mindset challenge is that most therapists don’t think they are “experts” or have anything to offer. “You are often the hardest person to convince that you have something valuable to offer,” he says. “Don’t confuse credentials, publications and notoriety with expertise and value. You have something to offer.”

As far as the benefits of offering clinical training, Dr. Handley has this to say. “Clinical training gives you the opportunity to connect with people who might well become colleagues, referral sources, collaborators and friends. That’s just not possible with therapy clients.” He adds, “For therapists who sometimes feel professionally isolated, training can help you meet your need for connection.”

Dr. Handley tells me the biggest benefit, though, is sharing what he has come to know about being a therapist. “I want to give away my knowledge and experience to everyone, but particularly to my therapist colleagues. We help clients use new knowledge in the service of their agenda. When training, the agenda is to help people be better therapists.” He adds, “I think training can promote personal, as well as professional and practice development.”

Info products

Information or info products are online educational material that you create and sell. Examples range from worksheets to e-books to courses.

Getting started in offering info products is as easy as compiling a set of reflection questions, calling it a worksheet, and selling it on Gumroad. The difficult part, though, is in creating something that is truly valuable and then getting that product in front of those who would find it valuable.

Whitney Goodman, LMFT offers several courses related to helping helpers. These are pre-recorded courses that once purchased, you can complete at your own pace. These differ from masterminds or cohort-based courses as we’ll see in the next section.

The main challenges that come with creating info products in general are identifying pain points to center your course around, developing the product itself, and then finding people who would be interested in purchasing it.

“Therapists are not trained to sell and this was something I had to learn as I went,” she explains. “Selling mental health related products is quite different from selling other consumer goods and there aren’t a lot of resources out there to help you do this in an ethical, appropriate way.”

The benefits that come with info products are they tend to be more scalable and help separate your time from your income. “I’m able to see way more clients at a reduced or sliding scale rate, work with the people I want to work with and can help, and I have a creative outlet that helps me beat burnout.,” Whitney adds. “I would not be where I am today if I didn’t take that leap. I love that my income is not completely tied to seeing clients and the security that gives me.”

If you are passionate about teaching and willing to invest the necessary time to learn what your potential community needs, then creating and selling info products may be a good fit for you.


Masterminds and cohort-based courses

Dr. Melvin Varghese started creating courses after therapists asked him how he launched his successful podcast, Selling the Couch. After offering several therapists paid one-on-one consult sessions, he wanted to separate his income from his time and created a course based off of what he centered his consulting sessions on.

Therapists then reached out to him about how they might build their own courses, which sparked the inspiration for his first cohort-based course.

“My grandparents and parents were all teachers. And I love learning and sharing,” Dr. Varghese explains. “I wanted an element in my business where students could gather in real time and our team could teach a bit, but more importantly, where we could do breakouts to exchange ideas and hold each other accountable.”

In a cohort-based course you tend to teach a group of people with some sort of live component. You may still have pre-recorded lessons, but then meet with the group periodically to dive deeper into the content and offer your guidance.

When he offered his first cohort-based course, Dr. Varghese underestimated the prep time for each lesson. “In general, the first time through a cohort-based course is rough,” he explains. “But the next time it gets 50% easier. The time after, another 50%. The best advice I can give is to not overcomplicate each lesson. Teach one thing. No more than three activities per hour. And aim to have your students get in at least two breakouts during each session to exchange ideas.”

While cohort-based courses tend to require more of your own time, you typically can charge a premium because of this. Dr. Varghese’s first cohort-based course launch made around $9,000. His second made around $13,000. Now his mastermind, which has a cohort-based course rolled into it, averages about $10,000 per month.

Another benefit of this over self-paced courses is your students will be able to make connections with others who are in a similar position as themselves which often incentives them to complete the course. 

Many creators of self-paced courses speak to the common problem of their students not finishing their course which often makes the course not seem as valuable as it could be. To get started, Dr. Varghese offers a free, seven-day email course to validate your course idea.

Memberships and communities

Memberships and paid communities have become more popular as society becomes more isolated. The Teletherapist Network was founded in July 2020 by Kathryn Esquer  in response to the burnout of doing teletherapy and feeling isolated. The community offers case consultation groups, co-working sessions, workshops and more.

If you’re interested in starting a paid community, there’s lots of great platforms that make it easy to host an online community such as Circle. Like many of the challenges of previous income streams, the biggest will be in finding people who would be interested in joining your community and offering something of value to them. If you can carve out a niche for yourself, some people may want to join simply to connect with others who are experiencing the same thing.

Another challenge that comes with paid communities is that you usually get out of it what you put in, especially on the front end. We’ve all experienced the awkwardness of going someplace new and not feeling welcomed, and that’s the danger of anyone hoping to start a community if they don’t build a stellar onboarding process.

The benefits of starting a paid community include forming a community that you yourself can benefit from, learning directly from your community what they are needing (which can be repurposed as content or courses), as well as solidifying yourself as a leader in whatever niche you choose.

Brand partnerships and influencer marketing

Building an audience on social media can enable you to monetize through brand partnerships and influencer marketing. Kelly McKenna, LCSW, MBA has done just that.

When she got her first offer for a brand deal in April 2021, she had 3,000 followers on Instagram. She promoted a therapy journal she liked and was so excited to be offered $5 commission per sale. “I made like $60 which wasn't bad, but I quickly realized that this wasn't the best use of my time and energy on Instagram,” she explains. “I could bring in a lot more revenue by marketing my own services, like therapy or a course, instead.”

One of the major challenges that come with working with brands is maintaining trust with your audience. It takes time to build trust and everyone knows the off-putting feeling of inauthentically being pitched a product. Because of this, Kelly is thoughtful with which brands she works with. 

“I love working with brands that I genuinely love,” she says. “I only partner with brands like Heard that fit within my niche and that wouldn't feel out-of-place to recommend or talk about on my page. I have worked so hard to build trust with my community. I'd never throw it away for a brand deal I didn't truly stand behind!”

The financial upside of working with brands can be significant. A key component of making this work for you, though, is knowing your own worth. In 2022, Kelly earned $37,516 just from brand partnerships. For context, she ended the year with 50,000 followers. 

She suggests taking on fewer deals if it means they’ll pay a rate that fits better with your financial goals, “It will be a much better partnership in the long-term. And your business will thank you,” she says.

The key to good brand deals is working with brands that ultimately serve your community. Think of when a good friend recommended a restaurant you ended up loving. You most likely felt thankful that they suggested it to you and will trust them the next time they suggest something to you. Trust is key.  


Podcasting can be another great way to monetize through sponsorships and advertising.

Starting a podcast may be easier than you think. Options like Spotify for Podcasters makes starting streamlined with built in recording and editing tools as well as audio assets that are ready to use. 

While starting might be easy, getting people to listen is more challenging. Podcasting is often thought of as a way to deepen your relationship and trust with your community rather than building a community. With the current podcasting platforms, it’s difficult to reach those who do not already know about you. It’s best practice to start building your community on other social platforms such as Twitter and Instagram and then direct them toward your podcast.

Dr. Kate Campbell, LMFT and Katie Lemieux, LMFT of the Private Practice Startup podcast share insights and wisdom from their own experience building thriving private practices. The Private Practice Startup wanted to expand to have a global reach to help therapists brand themselves, grow their practice, live their dream lives all while making a difference.

One of the main challenges they faced when they started was managing the system of podcasting. “There are also many steps to a podcasting system which can be super time consuming and overwhelming if managed all on your own,” they explain. “We have a step-by-step podcasting system which allows us to find the guests, show up, do the interviews that we enjoy and our amazing team takes care of all of the rest of the details!”

The monetary benefits of podcasts largely come from sponsors and advertising. If your podcast fits within a specific niche, it’s easier to create a mutually beneficial relationship with potential sponsors. You always want to keep serving your community at the top of your decision making process, and companies with products or services that could directly benefit your community could make great partnerships both for you and your community.

A secondary benefit of podcasting is making meaningful connections with other therapists and professionals in the wider community. Many folks are honored to be asked to speak about their experience and expertise. Connecting with them is a wonderful way to expand your own professional community as well as opens the doors for further partnerships and collaboration.

If you’re interested in deepening your relationship with your community, connecting with and learning from other community leaders, and working with sponsors then podcasting may be a good option for you.



Another way to generate income is through YouTube. Creating videos can feel daunting as it involves capturing video, audio, editing, and having an “on camera presence.” That said, video is a wonderful medium for your audience to get a better sense of who you are.

Dr. Marie Fang had two YouTube channels before starting Private Practice Skills, a channel with 45,000 followers focused on helping therapists start a therapy practice that fits their life. One of the biggest challenges she has faced while creating videos is an emotional one. “I still feel gutted when I see a comment that takes down my character,” she says. “And the paralysis that comes from fearing that I might inadvertently share inaccurate information that thousands of people then consume.”

As far as benefits go for starting a YouTube channel, Dr. Fang highlights the “evergreen” aspect of videos. “Though income from YouTube isn't truly passive as I need to create content for it to work, people are still watching all my old videos for years to come and my income holds steady even if I don't work for a few weeks,” she says.

YouTube is known as a platform that tries to incentivize their creators as much as they can. Income is generated through ads, so the more views your video attracts the more money you can make. It also has a powerful suite of analytics on the backend that helps you understand what exactly is connecting with your audience.

Another benefit of creating on YouTube, according to Dr. Fang, is the connection you can create with your community. If people are really interested in you and your content, they’ll watch several of your videos in a way that’s a little more unique to YouTube compared to a feed or “for you” page where someone quickly swipes through your content and is on to the next person.

If you’re interested in creating evergreen content and learning the skills behind video, then YouTube may be a good fit for you.


If you love to travel and plan events, offering retreats for therapists can be a great option. They’re also a tax write-off. Patrick Casale, LCMHC, LCAS offers retreats through his business, All Things Private Practice.

Patrick chose retreats because the power of travel is so transformative. “Retreat planning for me is so much more than just travel and experience,” he says. “It's an intimate incubator-like setting in a destination and it allows people to work through their self-doubt, perfectionism, and imposter syndrome together.”

You don’t have to start with an international destination retreat. It could be as simple as a day-retreat for your colleagues. “Once the guest is able to be vulnerable enough to share about their experiences and goals, this is where the magic is, and the life changing begins,” he says. 

Focus on creating an environment where therapists feel comfortable opening up. Pick a theme, share your own story, and offer some discussion questions. The magic comes from your guests sharing with and encouraging each other.

The opportunity for income offering retreats is extensive. Last year was Patrick’s first year and he hosted two. This year, he’s hosting five. It’s become a primary income source for him and he’s dedicating the majority of his career to it at this point.

If you enjoy hosting, facilitating discussion, and helping people grow toward their goals then organizing retreats might be a great fit for you.

Start by helping one person with one problem

I chose to lean into writing as an additional income stream. When I started, I hoped I would see monetary results quickly. Maybe that’s the case for the lucky few, but that has not been for me.

At first, this was discouraging. I questioned if it was even worth it to keep building something that seemed to have no guarantee.

I’m often reminded, though, of what my entrepreneurial inspiration Pat Flynn often says: “just start by helping one person with one problem.” All business boils down to helping people solve their problems. This is something we therapists are intimately familiar with.

Instead of providing therapy, what other ways might you help those in need? You have the skill, the expertise, and the experience. All you need to do is channel that into a new medium. 

It won’t be easy, but like all the difficult things you’ve experienced and helped your client’s walk through, it will be worth it.


Ben Behnen is a therapist who loves helping other beginning therapists. He's getting close to attaining his license in marriage in family therapy and is using his experience and love for writing to help other beginning therapists on their journey to licensure. You can follow him on Twitter where he posts daily or subscribe to his free newsletter that he sends every Friday with practical ways to grow as a therapist.

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.

The Complete Guide to S Corporations for Therapists

Making your therapy practice an S corporation can be hugely beneficial.

When you elect S corp status, you enjoy a lot of the good things that come with forming a C corporation—like reduced personal liability—while potentially reducing your tax burden.

Here’s everything you need to know about how S corporation status works, potential drawbacks to look out for, and how to elect S corp status for your therapy practice.


What is an S corporation?

When you run your own business, you have a variety of business structures to choose from, including:

  • Sole proprietorship
  • Partnership
  • Limited liability companies (LLCs)
  • Corporation

Your business structure determines how your income is taxed, your level of personal legal and financial liability, and who can share ownership of your business with you. For a full rundown, check out our complete guide to business entities.

Technically, “S corporation” does not describe a business structure, but a “filing status.” Your filing status is something you elect—or choose—when you file your taxes with the IRS. 

Electing S corporation status

Both LLCs and corporations have the option of electing S corporation status. Sole proprietorships and partnerships do not. 

Electing S corp status affects how your income is taxed by the IRS, and how your therapy practice’s profits are passed on to its shareholders. You do not need any shareholders besides yourself in order to elect S corp status.

Typically, you register your LLC or your corporation (by filing articles of formation or articles of incorporation, respectively) with your state. Then you elect S corp status with the IRS by filing IRS Form 2553. Depending on where your business is registered or incorporated, you may need to file a similar form with State tax authorities.

How S corporations are taxed

An S corporation is what’s known as a pass-through entity. All income is passed on from the S corporation to the individuals who own it. Although the S corp files a tax return—using IRS Form 1120-S (US Income Tax Return for an S Corporation)—the business entity does not pay taxes on its own income.

S corps vs. C corps

The C corporation is the default business structure when you incorporate. Meaning, if you file articles of incorporation, but you don’t elect S corp status, your company is a C corporation.

The biggest difference between S corps and C corps is in how they are taxed. Any income a C corporation earns is taxed at the corporate rate of 21 percent. Any money leaving the corporation in the form of salaries or dividend distributions is then taxed again according to the income tax bracket of the individual earning them. That’s what is meant by “double taxation” when it comes to corporations.

On the other hand, if you elect S corporation status, your corporation does not pay taxes on the income it earns. Instead, all income is passed to shareholders, who are then taxed at their individual tax rates.

In contrast with a C corp, an S corp must meet certain requirements when it comes to shareholders. That includes having no more than 100 shareholders. Also, only US residents may hold shares. Finally, an S corp is only able to issue one class of stock.

Like a C corp, a corporation with S corp filing status must elect a board of directors and hold shareholder meetings.

S corps vs. LLCs

The LLC business structure is one you register at the state level. Different states have different requirements in regards to registering LLCs. Your Secretary of State should be able to provide that information—or you can check out our state-by-state therapy practice startup guides.

LLCs have a number of options when it comes to federal tax filing. They can elect C corp, S corp, or partnership status. If multiple people own an LLC, they’re referred to as members. They may be considered partners or shareholders depending on the tax filing status the LLC elects.

If you are the sole member of your LLC, you may elect S corp status, becoming (for tax purposes) an S corporation with a single shareholder. 

You benefit from reduced personal financial and legal liability—your practice, an S corp, is distinct from you, an individual—and you aren’t required to pay self-employment tax (provided you are paid as an employee of your S corporation). At the same time, you avoid complicated tax filing and reporting requirements.  

Partly for these reasons, Heard helps clients form single member LLCs for their therapy practices.

Paying yourself as a single-member S corp

When your therapy practice is a single-member S corporation, there are two ways you can pay yourself:

  1. With a salary
  2. With shareholder distributions

In almost all cases, if you contribute to the day-to-day operations of your business, you are required to pay yourself a “reasonable salary” (more on that in a moment). You may also pay yourself shareholder distributions, but only in addition to your salary.

Paying yourself a salary from your S corp

Being paid a salary by your own S corp is the same as being paid a salary by any other business. Your income tax and FICA tax are withheld from your paycheck by the S corp, and paid to the IRS. The S corp makes FICA contributions and pays employment tax. You do not personally pay the 15.3% self-employment tax.

The IRS requires you are paid a “reasonable salary” based on the work you do. Learn more about setting a reasonable salary as a therapist

At S corps with multiple shareholders, salaries are typically paid to those who work directly for the business on a day-to-day basis, rather than those who have only invested capital in the business and play an advisory role.

In order to pay yourself a salary, you’ll need to set up payroll.

Paying yourself shareholder distributions from your S corp

As a shareholder, you can receive cash distributions from your S corp. Distributions offer more flexibility than a salary—you can adjust their amount according to your needs.

Also, distributions are not subject to payroll tax, employment tax, or FICA. When you receive distributions from your S corp, you pay tax on it when you file your individual income tax return.

Shareholder distributions are typically paid only to those who have invested in the S corporation and primarily play an advisory role—that is, you aren’t involved in day-to-day operations.

Paying yourself both a salary and shareholder distributions

Some therapists whose practices are single member S corporations choose to pay themselves both a salary and shareholder distributions.

One of the benefits of this approach is that you’re able to pay yourself a steady income in the form of a salary, while receiving extra distributions according to your business’s performance. 

For instance, when your client list is small, you may receive a regular salary. As it grows—and your profits grow along with it—you may find it’s appropriate to pay yourself a shareholder distribution relative to your S corp’s increased income.

Before settling on any particular method of payment, consult with an accountant.


What are the benefits of making your therapy practice an S corporation?

Before deciding to form an S corporation, it’s important to consider whether the benefits are worth the extra time and money required to incorporate or register an LLC.

These are the main benefits that S corp therapy practices typically enjoy:

  • Pass-through taxation. You don’t suffer the effects of “double taxation” on your income, as you would with a C corporation. You’re only taxed on money you receive from your S corp in the form of salary or wages.
  • Reduced liability. Since your S corp is distinct from your person, business debt the corporation assumes—or legal proceedings brought against it—doesn’t typically affect your personal finances.
  • Self-employment tax savings. You only pay employment tax on money paid to you as an employee. For instance, if your practice earns $120,000 over the course of the year, but just $80,000 of that is paid to you in the form of salary, you only pay employment tax on the $80,000. Check out Heard’s S corp calculator to estimate your potential tax savings.
  • The Qualified Business Income (QBI) Deduction. If your therapy practice is an S corp, there is a good chance you qualify for the QBI deduction. With QBI, you can deduct 20% of qualifying income from their taxes. For more details, check out the IRS page on QBI, or consult with an accountant

What are the drawbacks of making your therapy practice an S corporation?

Electing S corporation status isn’t the best choice for everyone. There are some factors to take into account before deciding to go this route.

  • Incorporation and registration fees. The cost of registering an LLC or incorporating your business varies from state to state. In addition to one-time fees for creating your new business entity, you may be required to pay franchise tax at the state level. 
  • Hiring an accountant. In almost all cases, businesses hire accountants to help them file articles of incorporation. It’s a complex process, and mistakes can be costly. In addition to the cost of incorporation, you should be prepared to pay annually to have your taxes reviewed and filed by an accountant.
  • Your reduced liability can be compromised. If you fail to take necessary steps to separate your personal and business finances, you could pierce the corporate veil, and potentially lose the liability protection S corporations offer.
  • More scrutiny from the IRS. Generally speaking, the IRS pays more attention to S corporations than sole proprietorships, and S corporations are more likely to be audited. Making a mistake on your taxes—like missing a deadline—may lead to the IRS withdrawing your S corp status and taxing you as a C corporation.
  • Payroll. In order to pay yourself as an employee, you’ll need a payroll solution like Gusto—an added expense for your business.

When it makes sense to form an S corporation for your therapy practice

There’s no hard and fast rule when it comes to the best time to form an S corporation for your therapy practice. 

Most financial advisors recommend forming an S corporation after you reach a certain level of annual profit—anywhere from $60,000 to $100,000—after which point the costs of forming an S corporation are balanced out by the benefits.

At Heard, we typically recommend clients wait to form an S corp until after being in business for at least one year as it can be difficult for a first-time therapy practice owner to project what their annual profit will be.

Deadlines for filing S corporation status

If you’d like to elect S corporation status, you must file IRS Form 2553 no later than two months and fifteen days after the beginning of the tax year in which you’d like the election to take effect. 

If you miss the deadline, you may choose to file your election, and have it take effect the following tax year. Or you may qualify for late election relief.

How to form an S corporation for your therapy practice

To form an S corporation for your therapy practice, you need to take two steps:

  1. Incorporate (file articles of incorporation with your Secretary of State, forming a C corporation) or register an LLC (file articles of organization)
  2. Elect S corporation status by filing IRS Form 2553

For help incorporating or registering your business, check out our state-by-state guides to how to start a therapy practice.

To fill out Form 2553, you’ll need the following info on hand:

  • The date you incorporated, or the date you registered your LLC
  • Your Employer Identification Number (EIN)
  • The state where you incorporated or registered an LLC
  • Your business address
  • Contact information for your registered agent
  • Contact info and SSN/EINs for each shareholder in your S corporation, as well as the percentage of the business each owns

Once you’ve elect S corporation status, you file your annual taxes using the following forms:

  • IRS Form 1120-S (US Income Tax Return for S Corporations), reporting your business’s revenue, expenses, and credits
  • Schedule K-1 (Form 1120-S), reporting each shareholders’ share of revenue, income, and credits

Your state taxes may require additional forms and procedures to file your taxes as a corporation or LLC.


Want to form an S corp and save money on your taxes? We’ll tell you when it’s the right time to form an S corporation and even file the paperwork for you. Learn more here.

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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