What Do Therapists Need to Know About Taxes in Kentucky?

Running a therapy practice in Kentucky means navigating a flat income tax, mandatory state licensing, and some county-level business requirements. Whether you're just launching or scaling up, this guide covers everything you need to keep your tax and business setup in shape.

Who this guide is for

This guide is for:

Licensed Kentucky therapists (LPCCs, LCSWs, LMFTs, psychologists, etc.)
Solo and group practice owners
Therapists providing in-person, telehealth, or hybrid services
Clinicians aiming to reduce tax stress and stay fully compliant

Step 1: Pick the right structure for your practice

Your legal structure impacts taxes, liability, and what filings you’ll need to make.

Sole Proprietorship

No registration needed unless using a trade name (DBA)
Income taxed through your personal return
No personal liability protection
Simplest structure, but riskier as your practice grows

PLLC (Professional LLC)

Kentucky allows licensed professionals to form PLLCs
Offers liability protection
Default tax status: pass-through to personal return
Can elect S Corp status later for tax savings
Must register with the Kentucky Secretary of State

S Corporation

Allows you to split income between salary and distributions
Reduces self-employment tax
Requires payroll, bookkeeping, and separate filings
Becomes worthwhile when net income exceeds ~$75K/year
Still subject to Kentucky flat income tax

Professional Corporation (PC)

Permitted in Kentucky
Can elect S Corp tax treatment
More admin-heavy — better for groups or multi-owner setups

Step 2: Know your state tax obligations

State income tax

Kentucky has a flat personal income tax rate of 4% (2025)
Applies to all pass-through business income
File with Form 740 (residents)

Limited Liability Entity Tax (LLET)

Applies to PLLCs and S Corps

$175 minimum or based on gross receipts over $3M
File annually with the Kentucky Department of Revenue
File using Form 720 and 720S (for S Corps)

Annual report

Required for PLLCs and PCs
$15 fee
Due by June 30 each year
File via Kentucky One Stop Business Portal

Local licensing

Some cities/counties (e.g., Louisville, Lexington) require local business licenses
Check for occupational license tax or gross receipts tax at the city/county level

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

Estimated taxes

Required if you expect to owe $500+ to Kentucky or $1,000+ to the IRS
Due quarterly: April 15, June 15, Sept 15, Jan 15
Use Form 740-ES or pay online

Self-employment tax

15.3% federal self-employment tax
Applies to net income from sole props and default PLLCs
S Corp can reduce this — if payroll is properly run

Filing requirements

Sole prop: Schedule C + KY Form 740
PLLC: Annual report + income tax return + LLET
S Corp: 1120-S + KY 720S + payroll filings + annual report + LLET

Step 4: Track and claim your deductions

Tracking deductions year-round helps you avoid overpaying.

Deductible expenses for therapists

EHR, scheduling, and HIPAA-compliant tools
Rent or home office
License renewals, CEUs, supervision
Malpractice insurance
Internet, phone, office supplies
Advertising and referral directories
Retirement plan contributions
Health insurance premiums (self-employed)

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

If your therapy practice is bringing in more than $75K in net income, it’s time to look at the numbers.

Pay yourself a W-2 salary
Take the remaining profit as distributions
Reduces self-employment tax
Still requires you to pay KY income tax and LLET
Must handle payroll and corporate filings

Step 6: Common mistakes therapists make

Forgetting about Kentucky’s Limited Liability Entity Tax

Missing the June 30 annual report deadline
Not checking for local occupational tax requirements
Skipping quarterly estimated payments
Waiting too long to set up an S Corp
Not tracking CEUs, supervision, or software expenses

Step 7: Our recommendations by income level

Net Income Range	Suggested Action
Under $50K	Stay sole prop or PLLC; pay quarterly taxes; file LLET if required
$50K–$100K	Consider S Corp; run payroll; check for local license tax
Over $100K	Full S Corp structure; retirement planning; CPA oversight recommended

Need help figuring this out?

We help Kentucky therapists choose the right structure, avoid tax penalties, and handle state-specific requirements like the LLET.

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.