Tips to Tackle Taxes if You’re in Private Practice

If you’re a private practice owner dreading your annual tax meeting with your CPA, you’re not alone. As a CPA who specializes in working with private practice owners, I understand that taxes, bookkeeping, and pretty much anything related to the financial side of your practice aren’t exactly things you’re most excited to talk about or deal with.

Decades of schooling and clinical training have made you great at helping your clients, but wouldn’t it have been nice if somewhere along the way you received how-to’s related to the financial side of running a private practice? My goal here is to prep you for your next conversation with your CPA and make up for that lack of formal financial training. And these aren’t just conversation starters; they’re the questions that can lower your tax burden and maximize your practice’s financial health.

So let’s dive in and focus on what moves the needle the most. When you understand which entity type makes the most sense, which retirement plan is optimal, and how to ensure you’re not missing any deductions, you’ll be in a better position to lower your taxes, make your life easier, and keep more of what you’ve earned.

Question 1: Should I create an LLC, S-Corp, Sole-Proprietorship, or C-Corp?

Choosing the correct entity type could have the biggest impact on your tax situation year after year, so this is a great place to start.

S-Corporations – In my firm, the vast majority of our mental health professional clients have their practice organized as S-Corporations (aka S-Corps). These entities have fees associated with them that other entities don’t, and they’re generally more difficult to manage. But when executed properly, they usually result in the smallest tax burden for the practice owner, by a pretty sizeable margin.

LLCs and Sole-Proprietorships – For practice owners who have a separate full-time job and/or view their practice as a side hustle, an LLC or sole proprietorship is often the simpler, more cost-effective route. These entities require far fewer hoops to jump through than S-Corps, making them easier and less expensive to maintain.

Another advantage is that converting from a single-member LLC to an S-Corp later on is relatively straightforward and can be done any time. Because of this flexibility, I typically advise new practice owners to start out as an LLC, then elect S-Corp status once their income surpasses a certain threshold. It’s worth noting that there are nuances between single-member LLCs and sole proprietorships, so make sure to discuss these details with your CPA.

C-Corporations – Only a quick word about C-Corps: they’re the only entity type subject to double taxation and are therefore almost never used by private practitioners. C-Corps do have some advantages, but not enough to dwell on here.

Last point about entity selection: location could matter. Some jurisdictions have oppressively high fees and taxes associated with S-Corps that may completely negate any benefit (I’m looking at you, New York City).

Question 2: Which retirement plan is most appropriate for my practice?

With the exception of Roth IRAs, any contributions made to a qualified retirement account are treated as tax deductions and have the same impact on your taxes as any other write-off.

Let’s say your practice pays $1,000 in rent. You get a $1,000 write-off, which will lower your taxes. But that money went to the landlord. Now let’s say you make a $1,000 contribution to a retirement account. You receive the same $1,000 write-off as the rent (which lowers your tax) but you didn’t have to give the money to the landlord or anyone else. By transferring funds from your business checking account into your personal retirement account, you just generated a tax deduction out of thin air! One move checks two important boxes: lowering your taxes and saving for retirement!

The most common retirement accounts utilized by savvy practice owners are SEP IRAs (great if you don’t have any employees), 401ks (great if you do have employees), and traditional IRAs (great for practice owners who are just getting started). For the ultra-successful practices looking to put away even more money, ask your CPA about cash balance pension plans.

Question 3: How do I make sure I’m not missing out on deductions or write-offs?

This is where many private practitioners find it helpful to work with a CPA or bookkeeper who is familiar with the intricacies unique to running a mental health practice. Some expenses are standard (think rent and malpractice insurance) while others need consideration (can you write off your hair and makeup before you get pictures taken for your website?).

Regardless of whether your bookkeeper specializes in working with mental health professionals, having a professional managing your QuickBooks account over the course of the year is a great start for making sure all expenses are captured—not just a robot that does your bank reconciliations, but someone with whom you feel comfortable speaking and asking questions.

Ideally, try to find professionals who charge flat fees instead of sending you a bill after every phone call or meeting. This will make you more inclined to pick up the phone or send an email and get answers to the questions that pop up during the year.

Pro Tip: As someone who has worked in a CPA firm for over 20 years, I can tell you that dealing with a CPA near the end of tax season (early March through mid-April) may not be a pleasant experience. CPAs aren’t exactly known for their communication skills, and this shortcoming is exacerbated after months of 90-hour work weeks. Schedule your annual tax call or meeting as early in the new year as possible to give yourself the best shot at having a meaningful conversation and getting some questions answered.

Simply put, these three areas—entity structure, retirement plan choices, and capturing every possible deduction—can have a significant impact on how much tax you pay. By asking your CPA about these specific topics, you’ll take a major step toward lowering your overall tax burden and keeping more of your hard-earned income. It’s not about becoming a tax expert; it’s about knowing the right questions to ask to protect and grow your practice.

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