4 Costly Mistakes Therapists Make That Lead to Higher Taxes (And how to fix them)
Running a private practice means wearing many hats. You’re supporting clients through complex moments, managing schedules, and making thoughtful decisions every day. The financial side of your practice, though, often comes with far less guidance, and that’s where small missteps can quietly turn into higher tax bills.
I work with therapists every day, and I see the same challenges come up again and again. Not because anything is being done “wrong,” but because accounting and tax strategy simply aren’t topics most clinicians are taught. In this post, I want to walk you through four common mistakes that can lead to paying more in taxes than necessary, and what you can do instead, so you can move forward with more clarity and confidence.
Mistake #1: Not Reviewing Your Business Structure as You Grow
Many therapists start their practice as a sole proprietor, and that’s often the right choice in the early stages. It’s simple, flexible, and easy to manage when income is still building.
However, as your practice grows and your profit increases, staying in the same structure can mean missing opportunities to reduce your tax burden.
Once a practice consistently reaches a higher income range, often around the mid five figures and beyond, it can be worth exploring whether an S-Corporation election makes sense. An S-Corp allows you to split your income between a reasonable salary and owner distributions. Only the salary portion is subject to self-employment taxes, which can lead to meaningful tax savings over time.
This isn’t a move everyone should make, and timing matters. But checking in on your structure as your income changes is an important part of long-term tax planning for therapists.
Mistake #2: Mixing Personal and Business Finances
This is one I see often, and you’re not alone if it’s something you’ve done. Mixing personal and business finances can happen easily, especially when a practice is new or growing quickly.
Using personal bank accounts for business income, paying business expenses with personal cards, or forgetting to record reimbursements can create messy bookkeeping. It also increases audit risk and can cause you to miss legitimate deductions simply because expenses weren’t tracked correctly.
The fix here is straightforward. Open a dedicated business checking account and, if appropriate, a business credit card. Even for sole proprietors, keeping finances separate makes accounting clearer, cleaner, and far less stressful. It also protects you if questions ever arise around your records.
Mistake #3: Missing Year-End Tax Planning Opportunities
Most people don’t think about taxes until the beginning of the next year. By then, many tax-saving opportunities have already passed.
Year-end tax planning can include things like prepaying certain expenses, covering upcoming software renewals, investing in office furniture or equipment, or making retirement contributions. Some retirement accounts, such as SEP IRAs or solo 401(k)s, require contributions to be made by the end of the tax year in order to count.
Even smaller decisions, like timing continuing education payments or professional fees, can impact your final tax bill. These strategies aren’t just for large businesses. They’re part of smart financial planning for private practice owners at every stage.
A simple review of your income and expenses before the end of the year can open the door to savings that aren’t available once January arrives.
Mistake #4: Waiting Too Long to Get Professional Support
Many therapists wait until tax season to bring in help, often when stress is already high. At that point, options can be limited.
Working with an accountant or tax professional during the year allows for proactive planning instead of reactive fixes. It gives you space to ask questions, review trends, and adjust before decisions are locked in.
This doesn’t have to mean constant meetings or complicated systems. Even quarterly check-ins can help ensure your books are accurate, your expenses are categorized correctly, and you’re aware of any changes in tax rules that might affect your practice.
Accounting for therapists works best when it’s part of an ongoing process, not a once-a-year scramble.
Bringing It All Together
The four mistakes we covered are common, and they’re understandable:
Not revisiting your business structure as income grows
Mixing personal and business finances
Skipping year-end tax planning
Waiting until the last minute to get professional guidance
None of these mean you’re doing anything wrong. They simply point to areas where a little clarity and support can make a big difference.
If you’re unsure where to start, or you want help reviewing your setup, this is exactly the work I do with therapists every day. From private practice bookkeeping to tax planning and coordination with your tax preparer, the goal is always the same: helping you feel steady, informed, and supported on the business side of your practice.
If you have questions or want to take a closer look at your numbers, feel free to reach out. I want to meet you where you are.
Until next time, be well.
Explore My Resources:
💚 YouTube Channel: Practical videos designed to help therapists feel calmer and more confident with their numbers.🌿 Website: Learn more about services, read additional blogs, or schedule personalized support.
