Your private practice is growing. You’re hiring, maybe opening a second office, investing in tools and support so you can help more clients.

But once your practice starts expanding, your taxes become bigger and more complicated.

Whether you’re shifting from solo to group, reinvesting profits, or working across state lines, there are tax decisions that can cost you thousands if you don’t plan ahead.

These tax tips for therapists will walk you through what to watch out for.

More importantly, you’ll learn how to keep more of what you earn as your mental health practice grows.

Hiring Your First Employee? Choose W-2 or 1099 Carefully

The first big tax decision when you grow your team? How to classify your new hire.

Do you bring them on as a W-2 employee, or pay them as an independent contractor using a 1099?

Here’s how they compare:

Tax Factor	W-2 Employee	1099 Contractor
Payroll taxes	You pay a portion	Contractor covers their own
Tax deductions	Payroll costs are deductible	Fewer related deductions
Control over work	High (set hours, rules, etc.)	Limited (independent worker)
Risk of misclassification	Low	Higher (if the IRS disagrees)
Forms needed	W-2, Form SS-4, payroll setup	1099-NEC, no payroll setup

W-2 employees may also qualify your business for state and federal tax credits.

Yes, they cost more up front, but they often come with better long-term tax benefits and fewer compliance headaches.

Opening a Second Location? Know Your State Tax Obligations

Expanding into a new office — especially across state lines — brings in a new layer of complexity: multi-state tax filing.

If you’re earning income in more than one state, you’ll likely need to:

• Register and file business taxes in each state
• Pay applicable franchise taxes or business license fees
• Track and report revenue separately by location
• Understand each state’s treatment of remote services or telehealth

Even if you’re still operating under a sole proprietorship, working across state lines can trigger new filing thresholds, depending on where your clients live.

Is Your Business Structure Still Working for You?

A sole proprietorship might have worked fine when it was just you.

But as your therapy practice grows, so do the risks (and tax opportunities) of sticking with that setup.

Here’s a quick breakdown of your options:

Limited Liability Company (LLC)

• Simple to form, offers personal liability protection
• Default tax treatment is like a sole proprietorship unless you elect S corp status

S Corporation

• Helps reduce self-employment taxes
• You draw a reasonable salary and take remaining profits as distributions
• Requires IRS Form 2553 and Form 1120-S
• Reduces overall tax liability for many practice owners

C Corporation

• Income stays in the business and isn’t reported on your personal return
• Useful for larger operations, but can lead to double taxation
• Less common for therapy practices, but a potential option depending on your income mix

Most growing practices benefit from switching to an S corp structure to save on taxes and create separation between personal and business finances.

New Expenses? Now They’re New Deductions

Expansion comes with expenses you never had to worry about as a solo practitioner. Many of them are tax deductions now.

Here’s a breakdown of commonly missed business deductions in an expanded mental health practice:

Top Tax Deductions Therapists Often Overlook

• Office rent, office space upgrades, and office decor
• Office furniture and office equipment
• Practice management software and EHR software (like HelloNote EMR or Osmind Analytics)
• Marketing and advertising: Google Ads, website costs, marketing materials
• Malpractice insurance and professional liability insurance
• Legal and professional fees (CPA, attorney, consultants)
• Continuing Education and professional membership fees
• Zoom subscriptions, therapy tools, laptops, and Wi-Fi
• Home office expenses if used for admin or telehealth
• Travel expenses for supervision, training, or conferences

Properly documenting these business expenses — through clean financial reporting like a profit and loss statement or balance sheet — will make tax season much easier and help avoid red flags during a tax audit.

Reinvesting in the Business? Don’t Skip Quarterly Taxes

It’s common to pour money back into the business during a growth phase.

This includes hiring, buying equipment, or upgrading systems. But when quarterly taxes hit, cash can feel tight.

Instead of skipping payments entirely, we advise making partial estimated payments.

Paying something is better than nothing, and it helps avoid penalties from the IRS.

Switching to an S corporation can also reduce quarterly tax obligations since you’re no longer paying self-employment tax on 100% of your net income — just your W-2 salary.

Here are some important forms and schedules to know:

• IRS Form 1040-ES (estimated tax payments)
• Schedule C (Form 1040) if you’re still a sole proprietor
• Schedule K-1 if you operate as an S corporation or partnership
• Form 8995 for the Qualified Business Income Deduction

Talk with your accountant about adjusting your estimates as your cash flow and business structure evolve.

Use the Qualified Business Income Deduction to Your Advantage

The Qualified Business Income (QBI) deduction, created by the Tax Cuts and Jobs Act, allows many therapy practice owners to deduct up to 20% of qualified net income. 

This is a major tax savings opportunity.

You may qualify if your business is structured as a:

• Sole proprietorship
• LLC
• S Corporation
• Partnership

And if your income stays below the IRS threshold, the deduction could apply to your full QBI amount.

Once your income exceeds that limit, things get more complex, especially for health care and mental health professional. The IRS treats these as specified service trades.

If you qualify, you’ll need to complete Form 8995 (or 8995-A) and file alongside your Schedule C or K-1. Missing this deduction is like leaving money on the table.

Stay Organized and Plan Like a Pro

As your practice grows, so do your responsibilities. Here are some tax planning habits that make a big difference:

• Keep business and personal finances fully separate (including your credit card)
• Track all business expenses using reliable practice management software or accounting tools
• Save receipts for everything, even small items like therapy sand or subscription services
• Stay current on membership dues, license renewals, and Continuing Education
• Budget for healthcare expenses, student loan interest, HSA reimbursements, and insurance
• Keep backup documentation like bank statements and financial reports on hand

Also, ask your CPA about deductions tied to energy-efficient office upgrades (under Section 179), retirement plan contributions, or items like Zoom subscriptions and therapy tools.

Expand Your Private Practice With Financial Confidence

If your therapy practice is expanding, your taxes shouldn’t be guesswork.

At Leichter Accounting Services, we help therapists and mental health professionals like you grow — the smart way.

Whether you’re hiring, changing your business structure, or just trying to keep up with your tax obligations, we’ll help you make informed decisions that save money and reduce stress.

Book a free consultation today. We’ll help you identify the right next steps for your business.