Private Practice Checklist

10 Steps to starting a private practice

1. Register as an LLC or a Sole Proprietor
2. Obtain an EIN from the IRS
3. Understand your taxes
4. Apply for an NPI number
5. Decide if you’ll take insurance
6. Set your private-pay fee
7. Purchase malpractice insurance
8. Establish your policies and procedures
9. Organize your documentation
10. Save time with AI tools

Limited Liability Company (LLC) or Sole Proprietor?

When deciding whether to register as an LLC or a sole proprietor, one isn't necessarily better than the other. Consider your needs, preferences, and the state you’re practicing in to help guide your decision. Below is a high-level summary of what each means for your taxes and your business.

Sole Proprietorship

• Setup: Simple and inexpensive; usually you just need to register your business name (if not using your own name) and get the proper licenses/permits.
• Cost: Low/minimal fees.
• Liability Protection: You are responsible for the debts and liabilities of your practice (i.e. business), which means that your personal funds and your practice funds are seen as the same thing by the law and state.
• Taxes: Your tax status will be that of a self-employed individual. Any revenue your practice makes is viewed as personal income by the state.
• Administrative Work: Minimal. You just track your income and expenses.
• Flexibility for Growth: Harder to scale if you want to hire staff or sublet space.
• Additional Notes: Must rely fully on malpractice insurance for liability protection.

LLC/PLLC

• Setup: Requires filing with the state, and not all states allow therapists to create an LLC/PLLC.
• Cost: Moderate. You will pay a filing fee + annual fees to maintain good standing (varies by state).
• Liability Protection: Creating a limited liability company (LLC) means that your practice will be held responsible for debts or lawsuits, rather than you as the individual owner. This impacts how you will be taxed.
• Taxes: You can decide to be taxed as a corporation, partnership, or sole proprietor, which will determine the rate you’re taxed at, what you can deduct as a business expense, and more.
• Administrative Work: You must maintain a separate bank account, records, and file annual reports.
• Flexibility for Growth: Easier to expand (bring on employees, contractors, multiple services).
• Additional Notes: Provides an extra legal buffer for non-clinical risks (leases, contracts, employees). Some states require PLLC for licensed professionals.

A sole proprietorship is a great option for therapists looking to start a small private practice quickly, affordably, and with low overhead. Over time, an LLC may support your long-term growth by limiting your personal liability and making it simpler to hire employees. However, not all states allow therapists to form an LLC, or you may be required to register as a PLLC rather than an LLC. We recommend consulting a tax professional before filing any paperwork to make sure you have all the information you need.

Obtain an EIN from the IRS

In order to file your taxes as either an LLC or sole proprietor, you'll need a federal tax identification number, known as an EIN. An EIN is like a Social Security Number for your business.

You can apply for an EIN using this link. Completing the application takes about 15 minutes (just keep in mind that you'll need to complete it in one sitting, as you won't be able to save and return to a partially completed application). Once you've submitted the application, you should receive your EIN immediately.

What you'll need:

• Your SSN or tax ID #
• The name of your LLC or practice
• The physical address of your business (a P.O. box is not allowed)

Important note about applying as an LLC

If you are operating your practice on your own, you will file as a single-member LLC. If your practice consists of two or more employees, you will file as a multi-member LLC.

SINGLE MEMBER

The IRS will tax your LLC as a “sole proprietorship”. This will not impact the amount of liability protection you receive if you were to register as a sole proprietor. Instead, the LLC income will appear on your personal tax return and your income will appear in Schedule C on the return.

MULTI-MEMBER

The IRS will tax your LLC as a “partnership”. Your LLC's income will appear on your personal tax return (Form 1040), but you will also need to file a 1065 Partnership Return.

Understand your taxes

Your exact tax situation will vary based on your state and the type of practice you’ve started. That said, here are a few basics to be aware of as you start a private practice.

1. Self-employment taxes

• As a private practice owner, you’re self-employed. That means you’ll pay self-employment tax (which covers Social Security + Medicare) in addition to your income tax.
• The rate is 15.3% on net earnings.

Example: If you earn $80,000 after expenses, you’ll owe federal income tax plus about $12,240 in self-employment tax.

2. Quarterly estimated taxes

• Unlike a W-2 job, taxes aren’t withheld for you when you run your own practice. You’re responsible for sending in estimated tax payments to the IRS (and state, if applicable) 4x/year.
• Typically, taxes are due around: April 15, June 15, September 15, and January 15.
• If you miss these quarterly payments, you will incur penalties and interest.
• Rule of thumb: set aside 25–30% of each paycheck into a separate tax savings account.