If you’re planning to switch your therapy practice to an S corporation (S corp), you can expect it to cost somewhere between $1,200 and $1,800.

‍

That covers the cost of incorporating (typically by registering an LLC), which varies by state, and hiring an accountant to file your S corp election.

‍

The exact cost of becoming an S corp will vary based on your location, plus other factors—like which payroll solution you choose and how much your accountant charges to file the paperwork.

‍

Plus, there are ongoing expenses. When you’re an S corp, it costs you more, one year to the next, to remain in business. 

‍

So the $1,200 to $1,800 figure is just the start. To help you budget for your new tax structure, here’s how much you should expect to pay to elect S corp status for your therapy practice, plus cover your first year of increased expenses.

‍

{{resource}}

Why make your therapy practice an S corporation?

If it costs so much to become an S corporation, then why do therapy practices do it?

‍

When you elect S corp status, you have more control over how your income is taxed. There’s potential to save thousands of dollars in taxes every year. And S corp status can open up more money-saving moves for your business.

‍

To learn more, check out 5 Reasons to Elect S Corp Status for your Therapy Practice.

The cost of incorporating for your therapy practice

Estimated cost: $300

‍

The typical route to becoming an S corp is to first incorporate at the state level. In most cases, that means forming a limited liability company (LLC) or equivalent and then electing S corp status with the IRS. 

‍

You incorporate by filing with the Secretary of State where your practice operates. For a walkthrough, check out our complete guide to LLCs for therapists.

‍

The cost of forming an LLC (or equivalent) varies widely from one state to the next. In addition to registering your LLC, you may need to pay annual fees to renew it.

For instance, in Massachusetts, it costs $500 to register your business. (In this case, therapists would register a professional LLC (PLLC), which is reserved for business owners practicing a licensed profession. 

‍

After your initial registration, you must pay $500 annually to maintain PLLC status.

‍

Luckily, Massachusetts is an outlier. In most states, you can expect to pay $100 – $200 to register your LLC or equivalent business structure, and $100 per year to renew it.

The cost of electing S corp status for your therapy practice

Estimated cost: $1,000

‍

Once your LLC is formed, you must file Form 2553 with the IRS to elect S corp status.

‍

You can choose to file this form yourself or you can pay your accountant to do it for you. 

‍

Word to the wise: If you are not 100% comfortable filing forms with the IRS, and you don’t typically handle your own tax filing, it’s best to get help from your accountant.

‍

Even though Form 2553 isn’t the most lengthy or complex IRS form out there, completing it is far from straightforward. 

‍

In fact, in the instructions for Form 2553, the IRS recommends business owners budget ten hours for recordkeeping, two-and-half hours for studying laws and form instructions, and just over four hours for preparing and submitting the form.

‍

Finally, making a mistake could mean you fail to elect S corp status, leading to complications when tax season arrives, plus lots of back-and-forth with the IRS.

‍

Accountants—and some online accounting services—charge upwards of $1,500 to file Form 2553 for you. They may charge less if you’re an existing client, or you bundle other services with your filing.

‍

Other solutions may cost less. For instance, when you’re a client of Heard, there’s zero cost to elect S corporation status. Although your monthly fees will increase afterward.

‍

Whichever route you take, be sure to allocate extra funds for the cost of the election.

‍

{{resource}}

The cost of payroll for your therapy practice

Estimated cost: $500/year

‍

When your therapy practice is a sole proprietorship, there’s no need for payroll. Every dollar your practice earns counts as your personal income, and you pay both income tax (according to your bracket) and self-employment tax (15.3%) on it.

‍

Once you elect S corp status, that changes. You must now hire and pay yourself as an employee, and that means choosing a payroll service. 

‍

Now, technically, you could handle payroll yourself: Calculate biweekly salary payments, then calculate and withhold income (state and federal) and FICA tax, plus any other withholdings (eg. workers’ compensation, health plan, retirement), then complete the ACH transfer and enter each part of the payment (gross salary, tax withholdings, benefits, net salary) on the books.

‍

But that not only increases the amount of paperwork you need to do each month; it introduces many opportunities for errors (like failing to withhold the correct amount from each paycheck) that could lead to major headaches come tax season.

‍

Most therapists who elect S corp status use a payroll solution to pay themselves (and any additional employees they hire).

‍

For a payroll solution, expect to pay around $40 to $45 per month. Gusto, a popular choice with small businesses, charges $40 per month for payroll plus $6 for each employee.

‍

As a ballpark figure, count on paying $500 per year.

‍

Luckily, this added cost should be offset by the money you save on self-employment tax (which is only charged on money you earn as an employee, and not on the rest of your income). Learn more from our article on tax optimization strategies for S corp therapists.

The cost of bookkeeping for your therapy practice

Estimated cost: $3,600/year

‍

Bookkeeping is the practice of tracking all your business’s financial transactions, entering them in the books, and generating financial reports.

‍

You need up-to-date bookkeeping to measure how your business is performing, and in order to accurately file your taxes. Learn more from our article on the difference between bookkeepers and accountants.

‍

When you hire a bookkeeper (or a bookkeeping firm) your monthly fee is typically based on the number of transactions you record each month.

‍

The more frequently you earn income or pay expenses, the more work your bookkeeper has to do—hence the higher charge.

‍

Some solutions—like Heard—combine daily bookkeeping with yearly tax preparation, and may include other services like quarterly tax estimates for one flat monthly rate.

‍

But, as a general guideline, plan on paying about $300 per month ($3,600 per year) for bookkeeping (not including accounting/tax prep).

The cost of accounting and tax filing for your therapy practice

Estimated cost: $1,500 (for both S corp and individual filings)

‍

Hiring a CPA to file taxes for your sole proprietor costs, on average, around $400. That includes filing Form 1040, Schedule C, and state tax forms.

‍

The price goes up when your business is an LLC with S corporation status. 

‍

The cost of tax filing for your business increases, because there are now more forms involved, more complexities to address—more ways, overall, for an accountant to justify a higher fee. 

‍

In addition to filing a tax return for your business, you must file an individual tax return covering your earnings as a W-2 employee of your practice. 

‍

You can expect filing a tax return for your S corp therapy practice to cost $700 to $1,000. For an S corp return, plus your individual tax return, plan to spend $1,000 to $1,500.

‍

Additional accounting services—like quarterly tax estimates, or advice and analysis—will add to the year’s total accounting bill.

‍

{{resource}}

The cost of additional insurance for your therapy practice

Estimated cost: Indeterminate

‍

Different states have different laws about the amount of insurance coverage you must carry to operate your therapy practice as an LLC (or the alternative structure for professionals, the PLLC). 

‍

Depending on where you operate and the amount of insurance coverage you already have, that may or may not mean an increase in premiums for your business. Contact your Secretary of State for more information.

How much does your first year as an S corp cost?

Including the cost of business formation and the operating costs specific to LLCs electing S corp status, budget $5,700 for your first year in business.

‍

After that, plan on paying around $4,100 to $4,400 in operating fees each year to keep your business up and running. 

‍

Again, these numbers are estimates, and your exact cost will depend on where you operate, as well as your business’s specific needs. For a more precise estimate, consult a tax professional.

‍

For $299 per month, we take care of your S corp tax election, bookkeeping, and annual tax filing. And Heard integrates with Gusto, so payroll is a breeze. Learn more about how Heard helps S corp therapy practices.

‍

—

‍

Still learning the ins and outs of the S corp tax election? Check out our Complete Guide to S Corporations for Therapists.

‍

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

‍

Bryce Warnes is a West Coast writer specializing in small business finances.‍

‍

{{cta}}