A therapist’s guide to tax season

Picture this: You’re sipping your coffee between sessions, scrolling through the news while your client notes load. A headline catches your eye:

“Berkeley psychologist sentenced to 30 months for hiding $1M in income—filed tax returns, but reported zero.”^[1]

He ran a private practice for years—but never reported a dollar of it. He filed returns on time, just left out the income. The result? Prison time, and over $590,000 in restitution.

You scroll again:

“Florida psychiatrist found guilty in $15M offshore tax evasion case—failed to report foreign accounts.”^[2]

She hid millions in offshore accounts while working as a therapist. The IRS caught on, and she was eventually sentenced.

These people weren’t shady scammers; they were licensed professionals just like you. And whether it was neglect, misjudgment, or something more deliberate, the consequences were catastrophic.

So when you glance at your own desk and see the unfiled 1099s or that box of receipts you swore you’d organize last fall, it’s not just clutter—it’s a tax headache waiting to happen.

Your situation might not be criminal, and you’re not trying to cheat the system, but even small tax mistakes can have serious consequences. Mistakes like late filings or underpaid estimates can cost you time and money, trigger penalties, and damage your credibility with clients or financial institutions.

In this blog, we will cover the taxes therapists owe, the important deadlines, and how accurate bookkeeping can keep you prepared and protected this tax season and beyond. 

The taxes you owe as a therapist

1- Federal income tax

Whether you’re a solo practitioner, part of a group, or contracting through platforms like BetterHelp or Headway, your earnings are subject to federal income tax. If you are self-employed—which includes most solo practitioners and contractors—you’ll typically file Form 1040 along with Schedule C, which reports your business income and expenses.

2- Self-employment tax

Therapists in private practice don’t receive a W-2 from an employer. That means you’re also responsible for self-employment tax, which covers the Social Security and Medicare contributions that an employer would normally split with you.

Here’s the breakdown:

• The self-employment tax rate is 15.3%.
• It includes 12.4% for Social Security and 2.9% for Medicare.
• If your net earnings exceed $200,000 (or $250,000 for married filing jointly), an additional 0.9% Medicare tax may apply.

Yes, it’s a hefty bite—but you can deduct the “employer” portion of SE tax (half of 15.3%) as an above-the-line deduction on your Form 1040.

Also read: What is self-employment tax? (2024-25 rates)

3- State income tax

Unless you live in one of the nine states with no income tax^[3], you’ll need to file a state return in addition to your federal one.

It gets a bit more complex if:

• You live in one state but see clients in another (via telehealth, for example).
• You practice across multiple states.

In these cases, you might owe state income taxes in more than one jurisdiction, depending on where your clients are and how much revenue you generate in each state

4- Sales tax

Here’s the good news: therapy services are not subject to sales tax in any state. You don’t need to charge your clients sales tax or remit it to the state.

However, selling products (like workbooks or therapeutic merchandise) or offering paid courses or programs may be a different story. Whether you owe sales tax on those items depends on your state’s specific laws and what product you’re selling.

State tax boundaries therapists must know

State income tax can be a bit tricky—especially if you’re running a private therapy practice. Whether you’re seeing clients in your home state or offering telehealth services across state lines, you might find yourself dealing with more than one state’s tax laws.

Here’s the good news: you don’t need to worry about state income tax obligations unless you trigger “income tax nexus.^[4]” 

But what exactly does that mean for therapists?

What is nexus, and why is it important for you?

In simple terms, “nexus” refers to the connection that a business (or in this case, a therapist) has with a state that makes you liable for taxes there. When it comes to income tax, if your business activities meet certain thresholds, you create a tax “nexus” in that state. This means the state expects you to file and pay taxes on the income you earn within its borders.

For example, let’s say you’re a therapist based in Texas, a state with no income tax, but you offer remote therapy sessions to clients in Oregon, which does have a state income tax. Over the year, you generate 30% of your total revenue from those Oregon-based clients. Even though you’re not physically in Oregon, the state may require you to file a tax return and pay income tax on that 30% of your earnings.

So, even though you’re in a tax-free state, the income you earn from clients in states with income tax could still trigger tax obligations there.

Common criteria that trigger nexus include:

• Revenue from the state: If you make a certain amount of money from clients in that state (often $50,000 or more), you might owe taxes there. For example, if 25% or more of your income comes from a specific state, that could trigger nexus.

• Physical presence: Even if you don’t physically work in a state, having a significant client base there may be enough for some states to consider it a taxable presence.

• Telehealth services: If you’re providing telehealth services across state lines, some states may consider this a form of doing business within the state, requiring you to file taxes there.

It’s important to remember that not all states have the same tax obligations. Some states have specific exemptions, while others are stricter about enforcing nexus for remote businesses like therapy practices. Some states, like California, use revenue thresholds to determine nexus, while others may focus on the type of business activity conducted in the state.

If you’re uncertain about whether your practice triggers nexus in a particular state, it’s best to check with a professional or the state’s tax authority. Meanwhile, you should also keep detailed records of where your income is coming from. This helps ensure you’re paying taxes in the correct states and staying compliant with all regulations.

Tax prep checklist: Forms to have ready this season

Tax season can feel like a mountain of paperwork, but getting organized can make everything smoother. Here’s a simplified checklist to ensure you’ve got everything you need to file your taxes: 

1. Your SSN or ITIN

Your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) is essential for filing your taxes. If you’re filing jointly, don’t forget your spouse’s SSN, too.

2. Income documents

As a therapist, you’ll likely receive:

• 1099-NEC: For income as an independent contractor (e.g., BetterHelp or other platforms).
• 1099-MISC: For other income, such as from selling products.
• W-2: If you worked for a clinic or under someone else’s practice.

Also read: 1099-NEC vs 1099-MISC: Differences, deadlines, and how-to’s

3. Records of client payments and income

Track all income from your therapy sessions, whether in-person or online, and from any product sales. Use accounting software or spreadsheets to stay organized.

5. IRS Form 1040

Form 1040 is your main tax form. If you’re self-employed, you’ll also file Schedule C to report your business income and expenses.

6. Self-employment tax form (Schedule SE)

As a self-employed therapist, you’ll need Schedule SE to calculate your self-employment tax (Social Security and Medicare).

Also read: Schedule SE (form 1040): Filing the self-employment tax form

7. S-corporation—Form 1120-S

If you’ve structured your practice as an S corporation, you need to file Form 1120-S^[5] with the IRS. This form is essential for reporting your S corporation’s income, deductions, and credits. Even if you don’t owe tax directly as an S-corp owner, the form must be submitted to report everything accurately.

8. Forms if you have employees

• Form W-2: If you have employees, you must file Form W-2 for each one. This form reports their wages, tips, and other compensation, along with the taxes you’ve withheld.

• Form 1099-NEC: If you hire independent contractors, you must file Form 1099-NEC for each contractor you’ve paid $600 or more during the year. You’ll submit Copy A to the IRS and give Copy B to the contractor. This form is used to report non-employee compensation.

• Form 1099-MISC: If you paid $600 or more to a person or LLC for services that aren’t classified as independent contractors (such as legal or consulting fees), you must file Form 1099-MISC for them. Again, Copy A goes to the IRS, and Copy B goes to the payee.

Also read: 1099 vs. W-2 forms: What’s the difference for employers?

Important tax deadlines for therapists 

It’s a sobering reminder of how serious tax issues can get if they’re left unaddressed. Staying on top of tax deadlines can help you avoid unnecessary stress—and potentially serious consequences—down the line.

Here are the key tax deadlines you need to mark on your calender: 

1. January 31st: deadline for Forms W-2 and 1099-NEC

If you have employees or independent contractors, 31st January is when you must send out Forms W-2 to your employees and 1099-NEC to your contractors.

2. April 15th: federal tax filing deadline

This is the big one: your Form 1040, along with Schedule C (to report business income and expenses), is due by April 15th. If you’re self-employed, you’ll also need to submit Schedule SE to calculate your self-employment tax.

If you’re paying state income tax, your state tax return will generally be due on the same day. But don’t forget to check specific state deadlines, as they can vary.

3. April 15th: first quarterly estimated tax payment

As a self-employed therapist, you’re responsible for paying your own taxes throughout the year in the form of quarterly estimated tax payments. The first payment for the year is due on April 15th. This includes income from January 1st to March 31st. If you don’t make this payment by the deadline, you could face penalties and interest, even if you file your tax return on time.

4. June 15th: second quarterly estimated tax payment

Your second quarterly estimated tax payment is due on June 15th, and it covers income from April 1st to May 31st. Just like the first payment, it’s based on your expected income, including earnings from therapy sessions, products, and any other income streams.

5. September 15th: third quarterly estimated tax payment

The third payment is due on September 15th and covers income earned from June 1st to August 31st. It’s important to continue making these payments on time to avoid a large tax bill when you file in April.

7. October 15th: extended filing deadline

If you can’t meet the April 15th filing deadline, you can file for an extension. The extension gives you an additional six months, pushing your filing deadline to October 15th.

Note: an extension to file is not an extension to pay any taxes owed. You’ll still need to make your estimated tax payments by the original due dates to avoid penalties.

6. January 15th of the following year: final quarterly estimated tax payment

Your final quarterly estimated tax payment for the previous year is due on January 15th. This covers income earned from September 1st to December 31st. This payment gives you a little more time to finalize your income and expenses for the previous year, and it helps you avoid a big lump-sum payment when filing your return.

Bookkeeping tips for tax season preparation

Without accurate, organized records, preparing your taxes can feel overwhelming, and mistakes can cost you. A little consistency in your bookkeeping practices all year long can save you time, money, and stress.

1. Catch up on bookkeeping backlog

If you’ve fallen behind on your bookkeeping, it’s time to catch up. Waiting until the last minute means you might miss important deductions or misclassify expenses, leading to confusion and errors come tax season. Set aside time each month to update your records, track payments, and review your financial statements. Catching up early makes tax filing a much smoother process.

Also read: Can catch-up bookkeeping help you resolve tax issues?

2. Reconcile your bank statements regularly

This means comparing your financial records to your bank statements to make sure everything matches up. Reconcile your accounts monthly so that discrepancies are caught early. This ensures that all your income and expenses are accounted for, which is critical for tax filing and overall financial health.

3. Track payments and client bills

For therapists, client payments can sometimes be a bit scattered, especially if you see clients through telehealth or insurance reimbursement. Stay on top of client bills by issuing invoices regularly and keeping track of all payments made. If you’re managing a sliding scale or offering discounts, make sure those adjustments are well-documented and accounted for.

3. Monitor insurance payments and reimbursements

As a therapist, many of your payments may come from insurance reimbursements. These can sometimes be delayed, and it’s essential to track what’s been paid and what’s outstanding. Make sure to track these reimbursements and compare them with your invoices to ensure you’re getting paid for all the services rendered. Accurate records of insurance payments can also help with tax deductions, especially if they affect your income reporting.

5. Stay consistent with accurate bookkeeping

Consistency is key. Schedule regular check-ins—weekly or monthly—to ensure your records stay up to date. Even if your practice is small, having an ongoing bookkeeping system will make year-end tax prep much easier

Also read: Why do small businesses need accurate bookkeeping and accounting?

The bottom line

Tax time is stressful, but it doesn’t have to be a nightmare. When you stay on top of what taxes you owe, what you can deduct, and when to file, you minimize the risk of errors and avoid the penalties that come with non-compliance. 

But staying on top of it all, especially while running a full practice, is easier said than done. That’s where being proactive pays off.

Knowing when to hand off your bookkeeping to experts can save you time, reduce stress, and ensure nothing slips through the cracks. Letting professionals handle the details keeps your financials accurate and up to date, so you can stay focused on your clients, not spreadsheets.

At CoCountant, we provide specialized bookkeeping services to therapists. From accurate tracking of deductible expenses to timely quarterly tax filings, we ensure that you’re always prepared for tax season. Our team handles everything from income tracking and insurance reimbursements to helping you stay organized with client billing.

We understand the unique challenges of managing a therapy practice, which is why we provide a dedicated bookkeeper and ongoing support to keep your finances in order year-round.

FAQs

What therapy-related expenses can I deduct?

As a therapist, you can deduct office rent, professional development courses, liability insurance, client-related supplies (like therapy workbooks), advertising costs, and a portion of your home if you see clients remotely (home office deduction). Always keep accurate records of all expenses to maximize your deductions and reduce your taxable income.

What if I’m reimbursed by clients for certain costs, like materials or travel?

Reimbursements you receive for client-related expenses (like therapy supplies or travel) aren’t taxable, as they’re not considered income. However, if you’ve already deducted those expenses, you’ll need to report the reimbursement as income. Keep clear records of both reimbursements and related expenses.

How do I handle taxes for telehealth sessions with out-of-state clients?

Telehealth services are generally subject to the same state income tax rules as in-person sessions. If you see clients from different states, you might owe taxes in those states based on the income generated. Be sure to check the tax regulations of any state where you provide services remotely and consider working with an accountant to navigate the complexities.