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What Do Therapists Need to Know About Taxes in South Dakota?

South Dakota doesn’t tax personal income — that’s a huge win for therapists in private practice. But don’t let that fool you. There are still important business structure and compliance tasks to handle, especially when it comes to sales tax and legal filings. This guide breaks it all down.


Who this guide is for

This guide is for:

  • Licensed South Dakota therapists (LPC-MHs, LCSWs, LMFTs, psychologists, etc.)
  • Solo or group private practice owners
  • Clinicians working independently or via telehealth
  • Therapists earning 1099 or self-employed income

Step 1: Pick the right structure for your practice

Your structure affects how you're taxed at the federal level — and what kind of liability protection you get.

Sole Proprietorship

  • No registration required unless using a business name
  • No liability protection
  • Income taxed on your personal federal return (SD has no income tax)
  • Must register a DBA with the Secretary of State if not using your legal name

PLLC (Professional LLC)

  • South Dakota permits PLLCs for licensed professionals
  • Gives you liability protection
  • Taxed like a sole prop by default unless you elect S Corp
  • Must file with the Secretary of State

S Corporation

    • Helps lower federal self-employment tax by paying yourself a salary + distributions
    • Makes sense when netting $75K+
    • Requires payroll, bookkeeping, and separate filings
  • No state income tax in South Dakota, so savings focus is on federal taxes

Professional Corporation (PC)

  • Permitted in South Dakota
  • More admin-heavy than PLLC
  • Can elect S Corp taxation
  • Typically used by multi-owner practices

Step 2: Know your state tax obligations

No personal income tax

  • South Dakota does not tax personal or pass-through income
  • No quarterly state tax payments or annual income tax filings

Sales tax

  • South Dakota charges sales tax on services, including therapy in many cases
  • Rate is 4.5% statewide, with additional local taxes
  • You must register for a Sales Tax License with the SD Department of Revenue
  • File monthly or quarterly returns depending on volume

Annual report

  • Required for PLLCs and PCs
  • Due on or before the anniversary date of formation
  • $50 filing fee
  • File with the Secretary of State online

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

Federal estimated taxes

  • Required if you’ll owe $1,000+ to the IRS
  • Due quarterly: April 15, June 15, Sept 15, Jan 15
  • Applies to all self-employed income, even though SD doesn’t tax it

Self-employment tax

  • Still applies at 15.3% unless you form an S Corp and pay yourself a salary
  • Becomes significant as income grows

Filing requirements

  • Sole prop: Schedule C (federal only) + collect/remit sales tax
  • PLLC: Schedule C + annual report + sales tax license + filings
  • S Corp: Federal 1120-S + payroll + annual report + sales tax returns

Step 4: Track and claim your deductions

You can reduce your federal tax liability with solid expense tracking.

Deductible expenses for therapists

  • Rent or home office
  • EHR and practice management tools
  • Supervision, CEUs, license renewal
  • Marketing, directories
  • Office supplies, phone, internet
  • Health insurance (if self-employed)
  • Retirement contributions (Solo 401k, SEP IRA)

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

S Corps save you money on federal self-employment taxes.

    • Pay yourself a reasonable W-2 salary
    • Take distributions that aren’t subject to SE tax
    • Maintain a clean separation between personal and business accounts
  • Still need to collect and remit sales tax on services

Step 6: Common mistakes therapists make

  • Not registering for a sales tax license
  • Assuming therapy services are tax-exempt (they usually aren’t in SD)
  • Forgetting to file the annual report
  • Skipping federal quarterly tax payments
  • Electing S Corp but not running payroll
  • Commingling business and personal expenses

Step 7: Our recommendations by income level

Net Income Range

Suggested Action

Under $50K

Sole prop or PLLC; register for sales tax; keep clean records

$50K–$100K

Evaluate S Corp; set up payroll; stay on top of sales tax filings

Over $100K

Use full S Corp setup; optimize salary vs. distribution; professional support advised

Need help figuring this out?

We help South Dakota therapists structure their practices, manage federal taxes, and stay compliant with state sales tax rules — so you don’t get blindsided later.

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.