What Do Therapists Need to Know About Taxes in Minnesota?

Minnesota has one of the highest income tax rates in the country — and that makes tax planning essential for therapists in private practice. Whether you’re just getting licensed or running a growing group practice, this guide breaks down what you need to know to stay compliant and keep more of what you earn.

Who this guide is for

This guide is built for:

Licensed Minnesota therapists (LPCCs, LICSWs, LMFTs, psychologists, etc.)
Solo practitioners, group practice owners, and independent contractors
Therapists who want to navigate Minnesota’s income tax system without surprises
Clinicians offering in-person, virtual, or hybrid care

Step 1: Pick the right structure for your practice

Your structure determines how you’re taxed — and how much liability protection you have.

Sole Proprietorship

Default structure — no formal registration needed
Income reported on your personal tax return
No liability protection
Must file a DBA if operating under a name other than your own

PLLC (Professional LLC)

Minnesota allows licensed professionals to form PLLCs
Offers liability protection
Default tax treatment is like a sole proprietorship
Can elect S Corp status for tax savings
File with the Minnesota Secretary of State

S Corporation

Helps reduce self-employment tax by splitting income
Requires payroll, separate filings, and more admin
Makes financial sense once you net ~$75K+ annually
Still subject to Minnesota income tax

Professional Corporation (PC)

Allowed in Minnesota
Can elect S Corp status
More paperwork — generally best for multi-member or larger practices

Step 2: Know your state tax obligations

State income tax

Minnesota uses graduated income tax brackets:

5.35% on income up to $30,070
6.8% on income $30,071–$98,760
7.85% on income $98,761–$183,340
9.85% on income over $183,340

Applies to all pass-through business income
File with Form M1

Annual renewal

PLLCs and PCs must file an annual renewal with the Secretary of State
Due each calendar year to keep the business active
No fee unless late

Local taxes

Minnesota has no local income tax, but some cities (e.g., Minneapolis, St. Paul) may require business licenses or registrations

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

Estimated taxes

Required if you’ll owe $500+ to Minnesota or $1,000+ to the IRS
Due quarterly: April 15, June 15, Sept 15, Jan 15
Use Form M1ES or pay online via Minnesota e-Services

Self-employment tax

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

Filing requirements

Sole prop: Schedule C + MN Form M1
PLLC: Annual renewal + MN Form M1 + federal return
S Corp: 1120-S + MN S Corp return (Form M8) + payroll + annual renewal

Step 4: Track and claim your deductions

Don’t leave money on the table — these expenses are often fully deductible.

Deductible expenses for therapists

Rent or home office
CEUs, supervision, license renewals
EHR and billing systems
Malpractice insurance
Internet, phone, marketing
Retirement plan contributions (Solo 401k, SEP IRA)
Health insurance (self-employed)

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

With Minnesota’s high tax rates, you’ll want to run the math early.

Pay yourself a W-2 salary
Take the rest of your profits as distributions (not subject to SE tax)
Must file federal and Minnesota S Corp returns
Payroll and bookkeeping are essential

Step 6: Common mistakes therapists make

Missing the annual renewal for your PLLC or PC
Not paying quarterly estimated taxes
Underestimating the impact of Minnesota’s high tax brackets
Skipping S Corp election once income grows
Commingling business and personal expenses
Not tracking CEUs or supervision costs

Step 7: Our recommendations by income level

Net Income Range	Suggested Action
Under $50K	Sole prop or PLLC; file Form M1 and pay estimated taxes
$50K–$100K	Consider S Corp election; run payroll; plan quarterly check-ins
Over $100K	Full S Corp setup; proactive tax strategy; retirement contributions

Need help figuring this out?

We help Minnesota therapists optimize their business setup, stay on top of quarterly taxes, and navigate one of the country’s highest personal income tax environments.

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.