Moving into private practice means becoming self-employed, and self-employment changes your entire relationship with taxes. Nobody withholds for you. Nobody matches your Social Security contributions. Nobody offers you a 401k. All of that is now your job, and if you are not accounting for it deliberately, you are probably underpaying taxes, underfunding retirement, and setting a fee that does not actually cover what you need.
This post is not tax advice. The specifics of your situation require an accountant who works with self-employed healthcare providers. What this post does is lay out the landscape so that conversation is more productive when you have it.
The self-employment tax reality
When you work for an employer, Social Security and Medicare taxes (collectively, FICA) are split between you and your employer: 7.65% each, for a total of 15.3%. When you are self-employed, you pay both sides. The self-employment tax rate is 15.3% on your net self-employment income, up to the Social Security wage base, with the Medicare portion continuing above that.
On $100,000 of net self-employment income, that is roughly $14,130 in self-employment tax before you have paid a dollar of federal or state income tax. This is the number most new private practice therapists are not prepared for.
The good news: you can deduct half of your self-employment tax from your gross income when calculating your income tax. It does not eliminate the cost, but it reduces it.
Quarterly estimated taxes
The IRS expects self-employed people to pay taxes as they earn, not in one lump sum in April. Quarterly estimated payments are due four times a year: mid-April, mid-June, mid-September, and mid-January. Missing them or underpaying results in penalties.
A rough but workable target is to set aside 25 to 30% of every dollar of net income for taxes. The exact amount depends on your state, your income level, your deductions, and your filing status. Your accountant can help you calculate a more precise number once you have a sense of your annual income.
Deductions worth knowing about
Self-employment comes with real deductions that employees do not have access to. Using them correctly reduces your taxable income and, by extension, your tax bill. The following are the most significant ones for therapists in private practice.
Self-employed health insurance
If you pay for your own health insurance and are not eligible for coverage through a spouse's employer plan, the premiums are fully deductible from your gross income. This is a significant deduction for solo practitioners. Unlike most deductions, this one reduces your adjusted gross income directly, not just as an itemized deduction.
Office rent and home office
If you rent office space, the full cost is deductible as a business expense. If you work from home and have a dedicated space used exclusively and regularly for your practice, you may be able to claim the home office deduction. The IRS has specific requirements for what qualifies, and the calculation is either based on the square footage of your office as a percentage of your home or a simplified flat-rate method. An accountant can determine which applies to your situation.
Malpractice and liability insurance
Both malpractice insurance and general liability insurance premiums are fully deductible as business expenses.
Continuing education and professional development
CE courses, conferences, supervision, consultation fees, professional books, and training directly related to your practice are all deductible. Licensing fees and professional association dues are also deductible.
Practice software and technology
Your EHR, documentation software, telehealth platform, scheduling tools, and any other software used for your practice are deductible. The business portion of your phone and internet service is also deductible if you use them for work.
Marketing and website
Directory listings (Psychology Today and others), your website hosting and design, and any paid advertising for your practice are deductible business expenses.
Office supplies and furnishings
Furniture and equipment used in your office can be deducted, either in full in the year of purchase or depreciated over time depending on the amount and your accountant's recommendation. Supplies, paper, printer ink, and similar items are straightforwardly deductible.
Retirement accounts: the most underused tax tool in private practice
Retirement contributions are one of the most powerful tools available to self-employed therapists, and many are not using them fully. Contributing to a retirement account reduces your taxable income dollar for dollar, which means it simultaneously builds long-term savings and lowers your current tax bill.
Solo 401k
A Solo 401k (also called an Individual 401k or one-participant 401k) is available to self-employed people with no full-time employees other than a spouse. It is particularly powerful because it allows you to contribute in two distinct capacities.
As the employee, you can contribute up to $23,500 per year (2026 limit), or $31,000 if you are 50 or older. As the employer, you can contribute an additional amount equal to up to 25% of your net self-employment income. The combined employee and employer contributions can reach $70,000 per year, or $77,500 if you are 50 or older.
That employer contribution is the part most therapists are not aware of. It means that even without an S-Corp structure, a solo practitioner can shelter a significant portion of their income from taxes while building retirement savings. A therapist earning $120,000 in net self-employment income could, in theory, contribute the full $23,500 employee portion plus roughly $28,000 as the employer portion, reducing taxable income by over $50,000 in a single year.
A Solo 401k must be established by December 31 of the tax year in which you want to make contributions for that year, though contributions themselves can be made up to the tax filing deadline including extensions.
SEP-IRA
A Simplified Employee Pension IRA is simpler to set up and administer than a Solo 401k. The contribution limit is up to 25% of net self-employment income, with a 2026 maximum of $70,000. The SEP-IRA does not have the employee contribution component, which means the total contribution limit is lower than a Solo 401k for most income levels. But the administrative simplicity makes it a reasonable choice for therapists who want a straightforward option.
Traditional IRA
A traditional IRA allows contributions of up to $7,000 per year ($8,000 if 50 or older) with potential deductibility depending on your income and whether you have other retirement coverage. For most therapists already contributing to a Solo 401k or SEP-IRA, a traditional IRA is a supplemental option rather than a primary one.
What this means for your fee
All of this has direct implications for how you set your fee. A sustainable private practice fee is not just income minus expenses. It needs to cover self-employment taxes, health insurance, retirement contributions, and the overhead of running a business, in addition to your actual take-home pay.
The post on how much to charge for therapy walks through the calculation, but the short version is that most therapists who have not factored in self-employment tax, health insurance, and retirement contributions are charging less than they need to. Running the real numbers, including these items, usually produces a higher required fee than the intuitive number most therapists start with.
Work with an accountant who knows self-employment
The deductions and retirement structures above are well-established, but applying them correctly to your specific income level, filing status, state, and business structure requires professional guidance. An accountant who works specifically with self-employed people or healthcare providers will pay for themselves many times over in the first year through deductions you would not have identified on your own and errors you would not have known you were making.
What to look for: experience with Schedule C and self-employment income, familiarity with Solo 401k and SEP-IRA structures, knowledge of your state's tax requirements, and the ability to help you think about quarterly estimated payments and year-end planning, not just file your return after the fact.