Starting a Business
Quarterly and Self Employment Tax
Therapists operating as LLCs must carefully manage quarterly estimated tax payments and self-employment tax obligations to stay compliant with IRS regulations and avoid penalties. LLC members are typically responsible for paying self-employment taxes, which cover Social Security and Medicare contributions. These taxes are calculated on the LLC’s net income and should be paid quarterly to prevent underpayment penalties.
Therapists without LLCs, operating as sole proprietors or independent contractors, also face self-employment tax obligations and must make quarterly estimated tax payments based on their income. The key difference is that without an LLC, the therapist reports income and expenses directly on their personal tax return using Schedule C, whereas LLCs might have different tax treatments depending on how the LLC is classified (single-member disregarded entity, partnership, or S-corporation).
Both LLC and non-LLC therapists should:
Estimate and pay taxes quarterly (using Form 1040-ES).
Keep detailed records of income and expenses.
Calculate self-employment tax (15.3%) on net earnings.
Consider state tax requirements.
Consult a tax professional for personalized guidance, especially when choosing entity classification or managing payroll taxes if the LLC has employees.
Proper tax planning helps therapists avoid large tax bills or penalties at year-end and ensures compliance with federal and state tax laws.
How to Pay Quarterly Taxes
As a therapist operating either as a sole proprietor, independent contractor, or through a private practice, understanding and paying quarterly estimated taxes is essential to avoid penalties and stay compliant with IRS regulations. Here is a straightforward guide on how to handle quarterly taxes.
1. Determine if You Need to Pay Quarterly Taxes
If you expect to owe at least $1,000 in taxes when you file your return and your withholding (if any) is less than the smaller of:
90% of the tax to be shown on your current year’s tax return, or
100% of the tax shown on your prior year’s return, you should pay estimated taxes quarterly.
2. Calculate Your Estimated Taxes
Estimate your expected gross income, deductions, and credits for the year.
Calculate your taxable income.
Use the IRS tax rates to compute your estimated annual tax liability.
Include self-employment tax at the rate of 15.3% on net earnings.
Subtract any estimated withholding and tax credits to determine the remaining amount owed.
Divide this amount by four to find your quarterly payment.
3. Use IRS Form 1040-ES
Obtain Form 1040-ES, Estimated Tax for Individuals.
Use the worksheet in the form to help calculate your quarterly payments.
You can make payments online, by phone, or via mail using the payment vouchers from Form 1040-ES.
4. Make Quarterly Payments by the Due Dates
Quarterly tax payments are generally due on:
April 15
June 15
September 15
January 15 of the following year
If a due date falls on a weekend or holiday, payment is due the next business day.
5. Keep Detailed Records
Maintain accurate financial records including:
Income received from clients or insurance companies
Business-related expenses such as office rent, supplies, and continuing education
Proper record keeping will facilitate accurate tax calculations and deductions. This is one great reason to have a business bank account that everything goes through.
6. Adjust Payments as Needed
If your income fluctuates significantly during the year, recalculate your estimated taxes before each payment to avoid overpaying or underpaying.
7. Consult a Tax Professional
Consider working with a CPA or tax professional familiar with therapists’ tax situations. They can help optimize deductions and ensure you meet deadlines.
By staying proactive and organized, therapists can manage quarterly taxes efficiently and focus on their practice without unexpected tax burdens. That said, quarterly taxes are definitely one of the biggest downsides to running private practice.
