Private Practice Taxes for Therapists: Quarterly Estimates, Self-Employment Tax, and California Basics
The first year in private practice catches a lot of therapists off guard at tax time. A few habits set up on day one prevent almost all of it.
When you’re self-employed, nobody withholds taxes for you. You’ll generally owe federal income tax, self-employment tax (Social Security and Medicare), and California income tax on your practice profit, and you’ll usually pay them in quarterly estimated payments using IRS Form 1040-ES and California’s Form 540-ES. Set aside a percentage of every deposit, track expenses, and have a CPA set your numbers. This is education, not tax advice.
Why private practice taxes feel different
At an agency, your employer withheld income tax and paid half of your Social Security and Medicare. In private practice you’re the employer and the employee. The IRS explains that self-employed people generally pay income tax and self-employment tax through estimated tax payments during the year. California has its own estimated tax system through the Franchise Tax Board.
Step 1: Separate your money
- Open a business checking account and use it only for the practice.
- Open a separate savings account just for taxes.
- Every time a payment lands, move a set percentage into the tax account. Your CPA can help you pick the percentage based on your income and household.
Step 2: Understand quarterly estimated payments
- Federal: The IRS uses Form 1040-ES. For 2026, the federal due dates are April 15, June 15, and September 15, 2026, and January 15, 2027.
- California: The FTB uses Form 540-ES, and its schedule and percentages don’t line up exactly with the federal schedule. Check the current FTB instructions.
- Penalties: The IRS generally lets you avoid an underpayment penalty if you pay enough during the year based on this year’s or last year’s tax; the exact rules are on the IRS page. A CPA can calculate a “safe harbor” amount for you.
If you still have a W-2 job, increasing your withholding there can sometimes cover part of your side practice tax. Ask your CPA.
Step 3: Know what self-employment tax is
Self-employment tax is how self-employed people pay Social Security and Medicare. It’s calculated on Schedule SE and is in addition to income tax. See the IRS self-employed tax center.
Step 4: Track expenses from day one
Common practice expenses therapists track (ask your CPA what’s deductible for you):
- EHR, telehealth, and practice software.
- Malpractice insurance and license renewals.
- Office rent or a portion of home office costs if you qualify.
- Continuing education, consultation, and professional memberships.
- Marketing: website, hosting, directory listings.
- Billing and bookkeeping services.
Keep receipts digitally and reconcile monthly. A bookkeeping tool or bookkeeper makes year-end much easier.
Step 5: Know your entity’s tax picture
- Sole proprietors report practice income on Schedule C of their personal return.
- Professional corporations file their own returns. Some elect S-corporation treatment and pay the owner a reasonable salary through payroll. California has an annual minimum franchise tax for corporations. See PC vs. LLC.
- Hiring? Employees (including associates, who must be W-2) mean payroll taxes and filings. Use a real payroll system.
Step 6: Get 1099s and records right
Insurance companies and platforms may send you 1099 forms. Make sure your W-9 name and tax ID match your entity, and reconcile 1099s against your own records before filing.
A simple tax calendar
| When | What |
|---|---|
| Every deposit | Move your set percentage to tax savings |
| Monthly | Reconcile books; save receipts |
| Each estimated due date | Pay federal and California estimates |
| January | Collect 1099s and year-end statements |
| Before filing | Meet your CPA; plan next year’s estimates |
Common mistakes
- Spending first-quarter income, then owing a large balance in April.
- Mixing personal and practice money.
- Forgetting California estimates.
- Paying associates or staff as 1099 contractors when they should be W-2.
If you have a side practice and a W-2 job
Side practice income adds to your W-2 income, so it may be taxed at a higher bracket than you expect. Two common approaches (ask your CPA which fits): make quarterly estimated payments for the practice, or increase withholding on your W-2 job to cover the extra. Either way, track practice income and expenses separately. The side practice page covers the minimum setup.
Records worth keeping
- Bank and card statements for the practice account.
- Payment processor and platform payout reports.
- 1099s from payers and platforms.
- Receipts for every practice expense.
- Mileage logs, if you travel between offices.
- Copies of every estimated payment confirmation.
Keep records organized by month. Your CPA will thank you, and if you’re ever audited, you’ll be ready.
Working with a CPA
Look for a CPA or enrolled agent who works with small healthcare practices. Ask them up front about quarterly estimates, entity choice, and whether an S-corp election makes sense for you. I can point you to options on a free call.
Rules change. Everything here is general business education for California therapists as of October 2026, not legal, tax, or billing advice. Confirm current rules with the BBS, DHCS, each payer (in writing), and your own attorney or CPA before you act.
Frequently asked questions
Do therapists in private practice have to pay quarterly taxes?
Generally yes, if you expect to owe tax that isn’t covered by withholding. The IRS uses Form 1040-ES and California uses Form 540-ES. Confirm with a CPA.
What are the 2026 federal estimated tax due dates?
April 15, June 15, and September 15, 2026, and January 15, 2027, per IRS Form 1040-ES. Check the IRS for changes.
How much should I set aside for taxes?
It depends on your income, deductions, household, and entity. Ask a CPA to set a percentage, then move it into a separate tax account with every deposit.
Is self-employment tax the same as income tax?
No. Self-employment tax covers Social Security and Medicare for self-employed people and is calculated separately on Schedule SE, in addition to income tax.
Should my practice be an S-corp to save taxes?
Some practices benefit from an S-corp election through a professional corporation, but it adds payroll and filing costs. It’s a CPA decision.
Can you do my taxes?
No. I share business education and checklists. Tax decisions should be made with a CPA or enrolled agent.
Sources (confirm current rules)
Official sources checked October 2026. Rules, forms, and processing times change; always check the live page.
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Want help applying this to your practice?
Bring your question to a free call. You’ll leave with a personalized plan and your next three actions. Business support only, so please don’t share patient information.