You need to enable JavaScript in order to use the AI chatbot tool powered by ChatBot

What Do Therapists Need to Know About Taxes in Tennessee?

Tennessee doesn’t tax earned income, but that doesn’t mean your tax setup is simple. Between franchise taxes, local licensing, and choosing the right entity, there’s plenty to get wrong. This guide walks therapists in Tennessee through the decisions that actually affect your bottom line.


Who this guide is for

This guide is for:

  • Tennessee-based therapists (LCSWs, LPC-MHs, LMFTs, psychologists, etc.)
  • Solo and group practice owners
  • Professionals seeing clients in person, online, or both
  • Anyone looking to reduce tax liability and set up their practice correctly

Step 1: Pick the right structure for your practice

How you structure your practice affects your taxes, legal risk, and future flexibility.

Sole Proprietorship

  • The default structure — no registration required unless using a trade name
  • No liability protection
  • Income is taxed as self-employment
  • Easy to set up but not ideal long-term

LLC / PLLC

  • Tennessee allows licensed professionals to form PLLCs
  • Offers liability protection
  • Taxed as a sole prop by default
  • Can elect S Corp for tax savings
  • Register with the Tennessee Secretary of State and licensing board

S Corporation

  • Lets you split income into salary + distributions
  • Only the salary is subject to payroll tax
  • Requires payroll, bookkeeping, and separate filings
  • Starts saving money around $75K net income

Professional Corporation (PC)

  • Permitted in Tennessee but not commonly used by solo practitioners
  • Can elect S Corp status for tax efficiency
  • More rigid compliance requirements
  • Used more often for multi-clinician practices

Step 2: Know your state tax obligations

No personal income tax

  • Tennessee does not tax earned income (salary or business profits)
  • This applies to income from sole props, PLLCs, and S Corps
  • Great for therapists keeping income in-state

Franchise & excise tax

  • LLCs, PLLCs, and S Corps must pay franchise and excise taxes annually
  • Franchise tax: $100 minimum or 0.25% of net worth in Tennessee
  • Excise tax: 6.5% on net earnings
  • Even S Corps are subject to these taxes at the entity level

Business licenses

  • Cities and counties often require a business license for gross income over $3,000/year
  • File with your county clerk and/or city licensing office
  • Renew annually and keep records

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

Estimated taxes

  • Required if you’ll owe $1,000+ to the IRS
  • Tennessee does not require personal state income tax estimates
  • But you may owe quarterly excise tax if you operate a PLLC or S Corp
  • Quarterly IRS due dates: April 15, June 15, Sept 15, Jan 15

Self-employment tax

  • 15.3% federal self-employment tax applies to sole props and default PLLCs
  • Electing S Corp reduces this by using payroll

Filing requirements

  • Sole props: Schedule C with 1040
  • PLLCs: File franchise & excise taxes + business license renewal
  • S Corps: 1120S with IRS + Tennessee franchise/excise return (FAE170)

Step 4: Track and claim your deductions

Tennessee may not tax your income personally, but the IRS still does. Track all deductible expenses.

Deductible expenses for therapists

  • Rent or home office
  • HIPAA-compliant telehealth and EHR platforms
  • Business insurance (liability, malpractice)
  • CEUs, supervision, licensing fees
  • Internet, phone, advertising
  • Health insurance premiums (if self-employed)
  • Contributions to Solo 401k or SEP IRA

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

Once your practice is bringing in steady profits, switching from a sole prop to an S Corp can save thousands in payroll taxes — even in a no-income-tax state.

  • Take a salary and pay payroll taxes on that portion
  • Remaining profits come to you as distributions — not subject to SE tax
  • You’ll still owe franchise and excise taxes at the entity level
  • Works best when net income exceeds $75K

Step 6: Common mistakes therapists make

  • Ignoring Tennessee’s franchise and excise taxes
  • Skipping required local business licenses
  • Failing to elect S Corp when income justifies it
  • Staying a sole prop too long and overpaying on SE tax
  • Not separating business vs. personal finances
  • Forgetting estimated IRS tax payments

Step 7: Our recommendations by income level

Net Income Range

Suggested Action

Under $50K

Sole prop or PLLC is fine; register for a local business license if needed

$50K–$100K

Consider S Corp election; pay excise/franchise tax; outsource payroll

Over $100K

Full S Corp setup; plan for quarterly taxes; maximize deductions and retirement

Need help figuring this out?

We help Tennessee therapists handle their franchise and excise filings, build compliant S Corps, and reduce their tax load — all without spending weekends on paperwork.

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.