Key Takeaways
Most therapists are taxed as pass-through businesses, which means the profit from your practice ends up on your personal tax return. A good rule of thumb is to save around 25–30% of what you earn, and to expect to make payments throughout the year, not just in April. Depending on where your clients live, you may even owe taxes in more than one state. And if something goes wrong, it’s usually fixable — penalties can often be reduced or corrected.
How are therapists taxed in private practice?
Most practices are taxed as "pass-through entities," meaning your practice itself usually doesn’t pay income taxes. Instead, the earnings from your practice (the business) are treated as your income, and you report it on your personal tax return. This income is typically reported on Schedule C of Form 1040.
This is the case for most practice structures, including:
- Sole proprietors
- Limited liability companies (LLCs)
- Professional limited liability companies (PLLCs)
- S corporations
- Partnerships
What about a C corporation?
Only C corporations pay taxes on their own income. The C corp is taxed at the corporate tax rate. Each employee (paid a salary) and stockholder (paid dividends) then pays taxes on their own earnings. This is sometimes referred to as “double taxation.”
It’s important to understand how your business structure impacts your tax payments and filing obligations. That applies whether you’re just launching your practice or planning to transition your existing practice to a new business structure.
Essential resources:
- How to Fill Out a Schedule C for Therapists
- The Complete Guide to LLCs and PLLCs for Therapists
- The Complete Guide to S Corporations for Therapists
How much should therapists save for taxes?
As a rule of thumb, most therapists should set aside 25% – 30% of your taxable income (also known as proft) for taxes. Your taxable income is the money you have left after business expenses and deductions. This covers both income tax and self-employment tax, which you are responsible for paying when you work for yourself.
- Income tax is calculated based on your tax bracket
- Self-employment tax is 15.3% of taxable income
When you’re an employee, your employer withholds taxes from your pay and submits them to the IRS. When you’re self-employed, it’s up to you to pay those taxes.
According to the 2025 Financial State of Private Practice Report, close to one half of therapists expected to pay $7,500 or less in taxes. Just 16% expected to owe $20,000 or more.
What are the best ways to calculate what I owe on taxes?
You can estimate your tax burden and set savings goals by:
- Creating a financial projection for the current year
- Referring to your tax return for the prior year
- Calculating 25% – 30% of your income monthly (saving as you go)
Essential resources:
- 5 Differences Between Personal and Business Tax Returns for Therapists
- How to Pay Yourself as a Therapist
- How to Read a Profit and Loss Statement for Your Therapy Practice (with Example)
38% of therapists did not pay any tax estimates
Calculating quarterly taxes requires estimating income, expenses, and timing throughout the year. When income fluctuates and there’s no clear system, it’s easy to fall behind.Calculating quarterly taxes is often confusing and time-consuming. When income fluctuates and estimates feel unclear, it’s easy to fall behind without support.
*According to the 2025 Financial State of Private Practice Report.
When do I pay taxes?
If you are self-employed, you do not wait until next year to pay taxes. You pay taxes in the same year you earn the income.
For most therapists, that means making quarterly estimated tax payments throughout the year instead of only one lump sum at tax time. If you expect to owe $1,000 or more in federal taxes, the IRS requires you to estimate and pay the full amount in quarterly installments. (This requirement is waived if it’s your first year in business.)
Your final tax return is still filed once a year, but the deadlines depends on how your practice is structured. Tax payments are due on April 15th for sole proprietors and March 15th for S corporations and partnerships.
What are the deadlines for quarterly tax payments?
Quarterly estimated taxes apply to income you are earning right now. For instance, in 2027, you would make quarterly installments for taxes owed on income you earn in 2027.
Quarterly estimated tax deadlines for therapists in private practice:
When the deadline falls on a weekend or a federal holiday, it moves forward to the next business day.
Essential resources:
- 2026 Quarterly Estimated Tax Deadlines for Therapists
- Can Therapists Catch Up on Estimated Taxes in Q4?
How do I pay taxes?
The easiest way to pay taxes for your private practice is online with IRS Direct Pay or the Electronic Federal Tax Payment System (EFTPS).
IRS Direct Pay is the simplest option if you’re making occasional payments. There is no enrollment required, and you pay directly from your bank account without storing banking information. It works well for quarterly estimated payments or one-off tax bills, supports common business tax forms (including 1120S, 941, and 940), and lets you schedule payments up to 365 days in advance.
EFTPS is better if you want a more set-it and forget-it system. It does require enrollment and a mailed PIN (usually 5-7 business days), but once set up, you can store banking information, schedule recurring payments, and submit nearly any federal business tax payment. Many practice owners use EFTPS to automate quarterly taxes and avoid missed deadlines.
Here’s a comparison:
IRS Direct Pay
- No enrollment necessary
- Good for one-off payments
- Recently expanded for business use
- Can process common business tax forms (eg. Form 1120S, 941, 940, etc.)
- You can schedule payments up to 365 days in advance, but IRS Direct Pay does not store your banking information
EFTPS
- Enrollment necessary (receive a PIN by may in 5 – 7 business days)
- Good for recurring payments
- Can process virtually any tax form used by a business
- You can set up recurring payments and schedule one-off payments up to 365 days in advance
- Stores your banking information
If you want step-by-step guidance on how to pay your taxes, these resources can help
- How to Pay Quarterly Estimated Taxes for Your Therapy Practice
- IRS Direct Pay (external link)
- EFTPS: A Guide to Getting Started (external link)
What if I mess up my taxes?
Making a mistake on your taxes doesn’t automatically mean you’re in serious trouble, but filing late, paying late, or filing inaccurately can lead to IRS penalties. Filing your tax return and paying your taxes are two separate requirements. You can be penalized for one even if you did the other on time.
There are several ways you can reduce or avoid penalties:
- Filing for an extension. Tax extensions are automatically approved, and give you an extra six months to file your taxes. Keep in mind tax payments are still due by the original deadline.
- Following safe harbor rules. Paying at least 100% of what you owed in taxes the previous year (110% for high earners) allows you to avoid underpayment penalties.
- Applying for penalty abatement. If you can prove that circumstances beyond your control prevented you from paying or filing, the IRS may reduce or remove penalties.
Essential resources:
- IRS Penalties for Therapy Practices
- What to Do if You Miss a Quarterly Tax Deadline for Your Therapy Practice
- The Safe Harbor Rule for Therapists
What’s changing this year?
The most significant tax changes for private practice owners in 2026 are:
- Permanent QBI deduction
- Higher SALT deduction
- Increased Form 1099-NEC threshold
- Higher threshold for Form 1099-K.
The permanent Qualified Business Income (QBI) deduction
The QBI deduction allows qualifying pass-through businesses (including therapy practices) to deduct up to 20% from their taxes.
- The QBI deduction was previously set to expire in 2025 but it is now permanent. The deduction rates and the method of calculation have not been changed, but the income phase-in rules for higher earners have been adjusted, which may affect eligibility for some practice owners.
- Phase-in periods for high-income earners have been modified
The increased State and Local Tax deduction
With the passage of the “One Big, Beautiful Bill” in July 2025, the cap on State and Local Tax (SALT) has increased.
- Prior to the OBBB, the cap was $10,000
- The new cap is $40,000
- The cap is scheduled to return to $10,000 in 2029
- Any state or local taxes your business pays qualify for this deduction
- The SALT deduction is especially attractive for businesses based in states with high income tax rates
Increased Form 1099-NEC thresholds
The threshold for issuing Form 1099-NEC has been significantly increased. This may change:
- Which contractors you’re required to issue Form 1099-NEC to
- Whether you as a contractor receive Form 1099-NEC from clients
Here’s what’s changed:
- Prior to the 2026, the IRS required that any contractor paid $600 or more over the course of the year be issued a Form 1099-NEC reporting the payment
- The threshold has increased from $600 to $2,000, starting with the 2026 tax year
- Clients issue one copy of Form 1099-NEC to the contractor and one form to the IRS
- This may reduce how many 1099s you need to send or receive depending on whether you hire contractors or work as one yourself.
A higher threshold for Form 1099-K
Payment processors (including those used by therapists) are required to issue Form 1099-K, which reports total payments made, to their clients. The threshold for reporting is increasing in 2026.
- Prior to the 2026 tax year, the reporting threshold was $600, with no transaction minimum
- Starting with the 2026 tax year, the reporting threshold is $20,000 with a minimum of 200 transactions
If you use a payment processor, you may not receive a Form 1099-K for 2026 if your total payments amount to less than $20,000 and 200 transactions. However, payment processors still have the option of submitting Form 1099-K even if the threshold is not met.
Essential resources:
What most therapists learn about taxes over time
Nearly every therapist feels unsure about taxes in the beginning. The terminology is new, the deadlines are unfamiliar, and the stakes feel high. But most of the process comes down to a few consistent ideas: save a percentage of profit, pay throughout the year, file annually, and adjust as you go. You don’t have to know everything at once to stay on track.
With the right system in place, and guidance on ways to reduce your tax burden, things tend to feel far more manageable over time.
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