- North Carolina
What Do Therapists Need to Know About Taxes in North Carolina?
You became a therapist to help people — not to stress over business taxes. This guide covers everything you need to know about setting up and running a tax-compliant therapy practice in North Carolina, whether you’re just starting or optimizing an existing one.
Who this guide is for
This guide is for:
- Licensed North Carolina therapists (LCSWs, LMFTs, LCMHCs, psychologists)
- Solo and group practice owners
- Professionals offering in-person or telehealth sessions
- Anyone who wants to run a clean, profitable, and legally sound business
Step 1: Pick the right structure for your practice
Your legal entity determines how you pay taxes, manage liability, and deal with compliance.
Sole Proprietorship
- Simple to start — default structure
- Business and personal taxes are combined
- No liability protection
- Report income on personal tax return (Schedule C)
PLLC (Professional LLC)
- North Carolina allows licensed professionals to form PLLCs
- Offers personal liability protection
- Taxed as a sole prop by default, or can elect S Corp
- Must be registered with the NC Secretary of State and approved by your licensing board
S Corporation
- Helps lower self-employment tax
- You pay yourself a salary and take the rest as profit
- Requires payroll, corporate filings, and good bookkeeping
- Makes financial sense when net income hits $75K+
Professional Corporation (PC)
- Permitted in NC
- Less common for solo practices due to complexity
- Can elect S Corp status for tax efficiency
- Requires Board approval and more rigid formalities
Step 2: Know your state tax obligations
State income tax
- North Carolina has a flat 4.75% income tax rate (as of 2024)
- Applies to all personal income, including pass-through income from S Corps and PLLCs
Franchise tax
- All corporations and LLCs taxed as corporations (e.g., S Corps) must pay NC franchise tax
- Minimum: $200 per year
- Based on net worth or business income — whichever is higher
Business licensing
- No statewide license for therapy practices
- Cities and counties may require a local business privilege license
- Zoning compliance required if seeing clients from your home
Step 3: Pay taxes throughout the year — not just in April
Estimated taxes
- Required if you’ll owe $1,000+
- Due quarterly: April 15, June 15, Sept 15, Jan 15
- Pay both to the IRS and the NC Department of Revenue
Self-employment tax
- Sole props and default PLLCs owe 15.3% on net income
- Electing S Corp reduces this by paying yourself a W-2 salary
Filing requirements
- Sole props: Schedule C + NC D-400
- PLLCs: Annual filing with state; may file as sole prop or S Corp
- S Corps: Federal 1120S + NC CD-401S and franchise tax return
Step 4: Track and claim your deductions
Every dollar you spend to run your practice (legitimately) is a dollar you shouldn’t pay tax on.
Deductible expenses for therapists
- EHR, scheduling, billing platforms
- Home office or commercial rent
- CEUs, license renewals, and supervision
- Professional liability insurance
- Marketing and ads
- Internet, phone, and office supplies
- Self-employed health insurance
- Retirement plan contributions
Step 5: When it’s time to consider an S Corp
When you’re making good money, it’s time to stop overpaying on taxes.
- If you’re netting $75K or more, an S Corp likely saves you money
- You’ll pay yourself a “reasonable salary” via payroll
- The rest comes as distributions — not subject to self-employment tax
- Requires a bit more admin, but worth it in most cases
Step 6: Common mistakes therapists make
- Forgetting the $200 minimum franchise tax for S Corps
- Missing local license or zoning requirements
- Staying a sole prop too long
- Electing S Corp but not running payroll
- Poor expense tracking
- Confusing PLLC vs. regular LLC (you need a PLLC in NC if you’re licensed)
Step 7: Our recommendations by income level
Net Income Range Suggested Action
Under $50K Stay a sole prop or form a PLLC; focus on clean record-keeping
$50K–$100K Evaluate S Corp election; outsource payroll and tax prep
Over $100K S Corp setup with retirement savings, quarterly tax planning, and full compliance
Disclaimer: This guide is for informational purposes only and does not constitute legal, tax, or financial advice. While we make every effort to keep the content accurate and up to date, state laws and regulations can change without notice. You should consult a licensed professional in your state before making any decisions based on this information. Leichter Accounting Services is not liable for any errors or omissions, or for any actions taken based on the contents of this guide.
Need help figuring this out?
We help therapists across North Carolina structure their practice, pay less in taxes, and stay compliant with state laws. Whether you’re just starting or scaling fast — we’ve got you.
Book a consult or email us at david@leichtercpa.com