Maybe! Here’s an overview of what an LLC can do and why you might choose one.
- Liability: LLCs are designed to carry the legal burden for business owners. That means if a client gets injured on your property or accuses you of malpractice, your business would be sued — not you as an individual. Similarly, if your practice doesn’t work out, your business could go bankrupt, but you personally would not.
- Taxes: Under the default tax classification, your LLC is a “pass through” entity. This means the business won’t file an income tax return to the IRS; instead, you’ll report the profit or loss of the business through your individual tax return, and be responsible for the resulting taxes. That may mean your annual filing process is simpler, but it also means if you accrue debts, creditors can require you to pay out of your own pocket.
S Corp for therapists and mental health providers
Another consideration: You can register your LLC with a different tax classification. Depending on your business’ revenue, your accountant might recommend you set up an S-Corporation, which separates your profit and loss as a business owner from your actual business.
With an S-Corp, your business has its own EIN (employer identification number) and pays its own taxes. You pay yourself a determined salary from the business, so you may end up saving money on self-employment taxes. Not sure if an S-Corp is right for you? A service like Heard can help you decide and assist you with filing, if needed.
Forming an S-Corp isn’t worth it for every therapist. It takes time, effort, and money to complete the proper registration procedures and set up payroll, bookkeeping, and accounting services. As your practice — and income — grows, however, an S-Corp may become an increasingly appealing option due to the potential tax savings. Many providers are moving toward this option to take advantage of the financial upsides.
Next steps: LLC for Private Practice Counseling
Not sure where to start, or if you should even be considering an LLC? It’s always a good idea to enlist a qualified professional when starting a new business. A lawyer and a certified public accountant is your best bet—ideally, ones who have worked with therapists before. Consider asking around your network for recommendations—the more support, the better!
