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What Do Therapists Need to Know About Taxes in Illinois?

Illinois therapists face a flat income tax, required annual filings, and optional S Corp benefits — all of which can either work for you or against you, depending on how your practice is set up. This guide helps you get it right from the start (or fix what’s already messy).


Who this guide is for

This guide is for:

  • Licensed Illinois therapists (LCSWs, LCPCs, LMFTs, psychologists, etc.)
  • Solo practitioners and group owners
  • Therapists providing in-person, virtual, or hybrid services
  • Anyone who wants to stay compliant and minimize tax liability

Step 1: Pick the right structure for your practice

Your business structure impacts how you’re taxed and what protections you get.

Sole Proprietorship

  • Default structure — no state registration required (unless using a trade name)
  • No liability protection
  • All income reported on personal tax return
  • Best for starting out or very part-time work

LLC / PLLC

  • Illinois allows licensed professionals to form PLLCs
  • Offers liability protection
  • Taxed as a sole prop by default unless you elect S Corp
  • Must register with the Illinois Secretary of State and notify your licensing board

S Corporation

  • Pay yourself a W-2 salary, take the rest as profit distributions
  • Only the salary is subject to payroll tax
  • Requires payroll system, separate tax filings, and more structure
  • Often saves money once net income reaches $75K+

Professional Corporation (PC)

  • Also permitted in Illinois
  • Heavier admin compared to PLLCs
  • Often used by large practices or those offering supervision
  • Can elect S Corp tax treatment

Step 2: Know your state tax obligations

State income tax

  • Illinois has a flat income tax rate of 4.95%
  • Applies to all individual and pass-through business income
  • You’ll file this on your IL-1040 each year

Annual reports and fees

  • PLLCs, PCs, and S Corps must file an annual report with the Secretary of State
  • Filing fee: $75
  • Miss it and you risk administrative dissolution

Local business licenses

  • Illinois does not have a state license requirement for private practice
  • Local jurisdictions (e.g., Chicago, Cook County) may require business licenses or zoning compliance for in-home offices

Step 3: Pay taxes throughout the year — not just in April

Estimated taxes

  • Required if you’ll owe $1,000+ to the IRS or $500+ to Illinois
  • Quarterly deadlines: April 15, June 15, Sept 15, Jan 15
  • Pay online via MyTax Illinois and the IRS portal

Self-employment tax

  • 15.3% applies to sole props and default PLLCs
  • Electing S Corp helps reduce this by paying yourself a salary

Filing requirements

  • Sole prop: Schedule C on federal return + IL-1040
  • PLLC/PC: Annual report + income flows to IL-1040
  • S Corp: Federal 1120-S + Illinois Form IL-1120-ST

Step 4: Track and claim your deductions

If it’s ordinary and necessary for your practice — it’s likely deductible. Just track it.

Deductible expenses for therapists

  • Rent or home office expenses
  • Telehealth/EHR platforms
  • Supervision, CEUs, license renewals
  • Insurance: malpractice and business
  • Phone, internet, and business subscriptions
  • Marketing and advertising
  • Retirement plan contributions
  • Self-employed health insurance premiums

Step 5: When it’s time to consider an S Corp

If you’re making real money, S Corp election stops you from overpaying in taxes.

  • Take a salary and pay payroll taxes on that portion
  • Take distributions with no self-employment tax
  • Requires bookkeeping and compliance, but worth it if net income is $75K+
  • Illinois S Corps file Form IL-1120-ST and pay the 4.95% state tax on net income

Step 6: Common mistakes therapists make

  • Not electing S Corp when their income supports it
  • Skipping quarterly estimated taxes
  • Forgetting annual report filing
  • Failing to register their PLLC properly
  • Mixing personal and business finances
  • Assuming a business license isn’t needed locally (Chicago often requires one)

Step 7: Our recommendations by income level

Net Income Range

Suggested Action

Under $50K

Sole prop or PLLC is fine; track deductions; file quarterly estimates

$50K–$100K

S Corp likely beneficial; run payroll and stay compliant

Over $100K

Full S Corp setup; maximize deductions; explore retirement planning

Need help figuring this out?

We help Illinois therapists handle their filings, clean up bookkeeping, set up S Corps, and get every deduction they’re entitled to — without the guesswork.

Book a consult or email us at david@leichtercpa.com


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.