What Do Therapists Need to Know About Taxes in Texas?

Texas might not charge personal income tax, but that doesn’t mean therapists get to skip out on business taxes. Between franchise tax, entity setup, and local licensing, you’ve still got rules to follow. This guide lays out what licensed therapists in Texas need to know to stay compliant and profitable.

Who this guide is for

This resource is for:

Texas-based therapists (LPCs, LMFTs, LCSWs, psychologists, etc.)
Solo practitioners and group practice owners
Clinicians seeing clients online, in-person, or both
Anyone trying to reduce tax burden and avoid costly mistakes

Step 1: Pick the right structure for your practice

Texas allows flexibility in how you form your business — but licensed professionals have to follow some specific rules.

Sole Proprietorship

No formal registration required unless using a trade name
All income taxed as self-employment income
No liability protection
Easy, but risky if you're sued or need formal contracts

PLLC (Professional Limited Liability Company)

Texas requires licensed professionals to form PLLCs, not regular LLCs
Offers legal separation between personal and business assets
Taxed as a sole prop by default unless S Corp election is made
Must register with the Texas Secretary of State and appropriate licensing board

S Corporation

Great for reducing self-employment tax at higher income levels
You pay yourself a reasonable salary (W-2) and take the rest as profit distributions
Requires payroll setup, separate filings, and record-keeping
Makes sense when net income hits ~$75K+

Professional Association (PA) or PC

Also available in Texas, but more rigid
Suitable for group practices or clinicians offering supervision
Can elect S Corp tax treatment
Requires formal corporate bylaws and structure

Step 2: Know your state tax obligations

No personal income tax

Texas does not tax personal income
Sole props, PLLCs, and S Corps don’t pay personal state income tax
You still owe federal income and self-employment tax (unless S Corp)

Franchise tax

All business entities (PLLCs, S Corps, PAs) must file a Texas Franchise Tax Report
No tax due if your gross revenue is under $2.47 million (as of 2024), but filing is still mandatory
If over the threshold, the rate is usually 0.375% on gross receipts for most small service businesses

Local business licenses

No statewide business license requirement
Cities like Austin, Houston, and Dallas may require local business registration or zoning permits, especially for in-home offices

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

Estimated taxes

Texas doesn’t require state-level estimated taxes for individuals
You still need to pay federal estimated taxes if you expect to owe $1,000+
Quarterly deadlines: April 15, June 15, Sept 15, Jan 15

Self-employment tax

Sole props and default PLLCs pay 15.3% SE tax on net income
Electing S Corp status helps reduce this — only your W-2 salary is taxed this way

Filing requirements

Sole prop: Federal Schedule C
PLLC: Annual Franchise Tax Report + public information form
S Corp: IRS Form 1120-S + W-2s for payroll + TX Franchise Tax Report

Step 4: Track and claim your deductions

Every legitimate business expense reduces your tax bill. Know what counts.

Deductible expenses for therapists

Office space or home office portion
HIPAA-compliant EHR and telehealth platforms
Malpractice and business insurance
CEUs, license renewals, supervision
Advertising and marketing
Business phone, internet, and subscriptions
Health insurance premiums (self-employed)
Contributions to Solo 401k or SEP IRA

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

Making good money? S Corp could save you thousands.

Pay yourself a salary and withhold employment taxes
Take additional profit as distributions — not subject to self-employment tax
You still file federal tax returns + franchise report in Texas
Worth considering once your net income hits $75K or more consistently

Step 6: Common mistakes therapists make

Forming a regular LLC instead of a PLLC (not allowed for licensed professionals)
Forgetting to file the required Franchise Tax Report — even if you owe nothing
Skipping payroll after electing S Corp
Not getting zoning approval or local permits for in-home offices
Missing quarterly IRS tax payments
Using personal accounts for business income/expenses

Step 7: Our recommendations by income level

Net Income Range	Suggested Action
Under $50K	Sole prop or PLLC is fine; file Franchise Tax Report on time
$50K–$100K	Consider electing S Corp; set up payroll; track deductions closely
Over $100K	Full S Corp setup; max out retirement contributions; quarterly CPA check-ins

Need help figuring this out?

We help Texas therapists form PLLCs, stay compliant with franchise filings, and avoid tax traps that can cost thousands. If you’re ready to clean up your practice and reduce your tax load — we’ve got you.

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.