Diane Kennedy, CPA
This article breaks down what the One Big Beautiful Bill means for therapists in private practice, including the now-permanent QBI deduction, the return of 100% bonus depreciation, and a higher 1099-NEC reporting threshold for contractors.
The One Big Beautiful Bill (OBBB) is law now and that likely means there are some things that need to change with your tax strategy and how you plan for taxes.
Here are some key points that therapists need to review for their own tax plan.
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Take QuizThe Qualified Business Income (QBI) Deduction Is Here to Stay
One of the biggest wins in the OBBB for many therapists is that the Qualified Business Income (QBI) deduction is now permanent.
Originally created by the Tax Cuts and Jobs Act in 2017, the QBI deduction was scheduled to expire after 2025. The OBBB makes it a permanent part of the tax code, giving many private practice owners greater certainty as they plan for the future.
Here’s why it’s important.
If you operate your therapy practice as a sole proprietorship or an S corporation, you may qualify for a deduction of up to 20% of your qualified business income (QBI). The OBBB also introduced a minimum QBI deduction for certain lower-income business owners, making the deduction more valuable for some newer or smaller practices.
That doesn't mean everyone automatically receives the full 20%.
Your deduction can be affected by several factors, including:
- Your taxable income
- Your business structure
- Wages paid by the business
- The type of business you operate
- Retirement plan contributions and other tax planning strategies
For many therapists, thoughtful year-end planning coupled with accurate and timely bookkeeping can significantly impact the deduction.
A Common Misunderstanding
One of the questions I hear most often is whether the deduction is based on how much money you take out of the business.
Let's look at a simple example.
Suppose your therapy practice is an S corporation.
- Your practice earns $100,000 before paying you.
- You pay yourself a reasonable salary of $40,000.
- That leaves $60,000 of business profit.
- During the year, you distribute $50,000 from the company to yourself.
Many people assume the QBI deduction is based on the $50,000 distribution or a combination of salary with other factors.
It isn't.
The distribution is simply moving money from your business to your personal bank account. It doesn't determine your Qualified Business Income.
Instead, your QBI generally begins with the $60,000 of business profit remaining after your reasonable salary has been paid. Assuming no other limitations apply, the potential QBI deduction would be based on that $60,000, not on the amount distributed.
In this example, the potential deduction would be: 20% × $60,000 \= $12,000.
This is a deduction straight off the bottom line. You made the money. You don’t to spend anything to get it. It just means less tax.
Notice two important points:
- Your salary is not considered Qualified Business Income, so it doesn't generate the deduction.
- Your distribution doesn't reduce your Qualified Business Income. Whether you distribute $10,000, $50,000, or leave all of the money in the company, the starting point for QBI is still the business's qualified profit.
This is one reason entity planning matters. Choosing the right salary in an S corporation isn't just about trying to reduce payroll taxes. It can also affect your QBI deduction and satisfy the IRS requirement for reasonable compensation.
What You Should Do Now
- Find out whether you're currently receiving the QBI deduction. Many business owners don't realize whether they qualify or how it's calculated.
- Review your business entity. As your practice grows, a sole proprietorship may no longer be the most tax-efficient structure.
- If you have an S corporation, review your shareholder salary. It should be reasonable for IRS purposes while also supporting your overall tax planning.
- Keep your bookkeeping current. Accurate financial statements make it much easier to estimate your QBI deduction before year-end.
- Meet with your tax advisor before December 31. Once the year ends, many planning opportunities that affect your QBI deduction are no longer available.
Bonus Depreciation Is Back at 100%
If you've been thinking about upgrading your practice, the OBBB contains another piece of good news.
The law restores 100% bonus depreciation for many qualifying business assets placed in service after the effective date. That means you may be able to deduct the full cost of eligible equipment in the year you purchase it, rather than spreading the deduction over several years.
For therapists, that might include:
- Computers and laptops
- Office furniture
- Therapy room furnishings
- Waiting room furniture
- Printers and networking equipment
- Security systems
- Cameras or video equipment for educational content
- Podcast equipment
- Telehealth equipment and related technology
But here's where I often find myself playing myth-buster.
The "Free Computer" Myth
Not long ago, a client called me, genuinely upset. "Why didn't you tell me about this tax break?"
I asked what she was talking about.
"I owe about $2,000 in taxes. I just found out I could either pay the government or buy a new MacBook. Why didn't you tell me?"
I smiled.
“Well, because that's not how taxes work."
Unfortunately, social media has made this myth incredibly popular.
Somewhere along the line, people began believing that if they buy business equipment, the government simply pays for it through a tax deduction.
That's not what happens.
Let's say you purchase a new MacBook for $2,000 and it's fully deductible under the bonus depreciation rules.
You don't save $2,000 in taxes.
Instead, you reduce your taxable income by $2,000.
If you're in the 24% federal tax bracket, your federal tax savings might be around $480 (before considering state taxes or other factors).
You still spent $2,000 to save about $480.
That's a perfectly reasonable decision if you already needed the computer.
It's a poor financial decision if you bought it solely because someone on TikTok said it was "free."
The Better Way to Think About It
Tax deductions should support good business decisions, not drive them.
If you've already planned to replace aging office furniture, upgrade your telehealth technology, or invest in equipment that helps you serve your clients more effectively, the return of 100% bonus depreciation makes those purchases more tax-efficient.
But don't buy something simply because it's deductible.
If you're buying equipment anyway, bonus depreciation lets you deduct more of the cost today instead of spreading the deduction over several years. That's good tax policy. It's just not the same as getting the equipment for free.
Growing Your Practice: Employees or Independent Contractors?
One of the exciting milestones in a therapy practice is realizing you can't, and shouldn't, do everything yourself.
The next milestone is building a team.
As your practice grows, you'll probably notice three categories of work:
- The work you do exceptionally well.
- The work you enjoy.
- The work that generates revenue.
Then there's everything else.
Scheduling appointments, bookkeeping, credentialing with insurance companies, marketing, website maintenance, billing, and administrative tasks all take time. Many successful therapists eventually decide those responsibilities are better handled by someone else.
That's when an important tax question arises: Should you hire an employee or an independent contractor?
The Difference Matters
The IRS doesn't let you simply choose whichever classification of employee vs independent contractor is more convenient.
Instead, it looks at the facts and circumstances of the working relationship. In general:
- Employees work under your direction and control. You decide when they work, how they perform their job, and often provide the equipment they use.
- Independent contractors typically operate their own business. They control how the work is completed, often provide their own tools, and may work for multiple clients.
The distinction is important because the responsibilities are very different.
If you hire an employee, you'll generally need to:
- Run payroll and withhold taxes.
- Pay the employer's share of Social Security and Medicare taxes.
- File quarterly and annual payroll tax returns.
- Comply with federal and state employment laws.
- Depending on your state and the size of your practice, you may also need to consider workers' compensation, unemployment insurance, overtime rules, paid leave requirements, and other employment regulations.
Hiring an independent contractor usually involves less ongoing administration, but it comes with one very important reporting requirement.
Don't Forget Form 1099-NEC
If you pay a qualifying independent contractor $2,000 or more during the year for services performed in the course of your business, you'll generally need to issue Form 1099-NEC and file it with both the contractor and the IRS. The threshold change was a welcome change with OBBB. The previous reporting threshold was $600.
The easiest way to make January less stressful is to collect Form W-9 before you pay a contractor for the first time.
The W-9 provides the information you'll need later, including:
- The contractor's legal name
- Business name, if applicable
- Taxpayer Identification Number (TIN)
- Business classification
- Mailing address
I've seen too many business owners wait until late January to ask for a W-9, only to discover the contractor has moved, changed businesses, or simply stopped responding.
One important note is not to assume you won’t have to send a Form 1099-NEC because you’ll pay them less than $2,000 and so wait to get the W-9. It’s much easier to get it up front, just in case.
Also, remember, the reporting threshold changed, not whether the payment is deductible. If you pay a contractor $1,500 for legitimate business services, it's still a deductible business expense. The OBBB simply means you generally don't have to issue a Form 1099-NEC for that payment.
A Final Thought
Many therapists assume independent contractors are always the less expensive option. Sometimes they are, but only if the classification is correct.
Misclassifying an employee as an independent contractor can lead to payroll tax assessments, penalties, interest, and additional reporting requirements.
The OBBB didn't change those classification rules. As your practice grows, taking a few minutes to determine the correct relationship before someone starts working for you can save a great deal of time, money, and frustration later.
What You Need to Know
- Decide on the worker's classification before they begin working. The IRS looks at the actual working relationship—not what you call it in a contract.
- Collect a completed Form W-9 before making the first payment. It's much easier to gather the information at the beginning of the relationship than months later.
- Remember the new reporting threshold. Beginning with the OBBB, Form 1099-NEC is generally required only if you pay a qualifying independent contractor $2,000 or more during the year.
- The deduction didn't change. Whether you pay a contractor $500, $1,500, or $5,000, a legitimate business expense is still generally deductible. The OBBB changed the reporting requirement—not the deductibility of the expense.
- Keep good records. Maintain copies of contracts, invoices, W-9s, and payment records throughout the year. Good bookkeeping makes January reporting much easier.
- When in doubt, ask before you hire. It's much easier - and usually much less expensive - to classify a worker correctly at the beginning than to fix the problem after an IRS or state agency asks questions.
Good Records Make Good Tax Returns
One of the biggest misconceptions about taxes is that tax planning happens when you prepare the tax return. It doesn't.
By the time your return is sitting on your CPA's desk, most of the important tax decisions have already been made…..or missed.
The best tax strategies begin with good records.
That doesn't mean you need a shoebox full of receipts or a filing cabinet packed with paper. In fact, today's bookkeeping software makes it easier than ever to stay organized throughout the year.
As your practice grows, make it a habit to maintain:
- A separate business bank account
- Bookkeeping software that's kept current
- Digital copies of receipts and invoices
- Mileage records for business travel
- Monthly Profit & Loss statements
- A current Balance Sheet
- Documentation for major purchases and business decisions
If your practice operates as an LLC or S corporation, don't forget the corporate formalities.
Many business owners form an entity, file the paperwork, and never think about it again. While LLCs generally have fewer formal requirements than corporations under state law, maintaining good governance is still a smart business practice. If you've elected S corporation status, it's especially important to document significant business decisions.
That includes:
- Holding at least an annual meeting, even if you're the only owner.
- Preparing simple meeting minutes that document major decisions.
- Keeping records of significant purchases, loans, distributions, and ownership changes.
These don't need to be lengthy legal documents. A one-page set of minutes signed and dated each year is often enough to demonstrate that you're treating your business as a real business rather than simply an extension of your personal finances.
Good records also make tax planning much easier.
When your financial statements are current, your advisor can identify opportunities before year-end, estimate tax liability, and recommend strategies while there's still time to act.
Perhaps most importantly, good records provide the documentation behind your deductions.
The tax law may allow you to deduct an expense, but if you can't demonstrate that it was an ordinary and necessary business 21expense, the deduction may not survive an IRS examination.
Tax law creates opportunities. Good records are what allow you to turn those opportunities into legitimate tax savings.
Questions Therapists Frequently Ask About the OBBB
What is the One Big Beautiful Bill (OBBB)?
The One Big Beautiful Bill (OBBB) is a major federal tax law that made several provisions of the Tax Cuts and Jobs Act permanent while introducing new tax rules affecting businesses and individuals. For therapists, the most significant changes include making the Qualified Business Income (QBI) deduction permanent, restoring 100% bonus depreciation, and increasing the Form 1099-NEC reporting threshold.
Does every therapist qualify for the QBI deduction?
No. While many private practice owners may qualify, the amount of the deduction depends on factors such as your taxable income, business structure, wages, and other tax planning considerations. The deduction is no longer scheduled to expire, but it's still subject to the qualification rules.
Should I form an S corporation because of the OBBB?
An S corporation can provide tax advantages for therapy practices. Your profitability, payroll requirements, administrative costs, and long-term goals all play a role.
Does 100% bonus depreciation mean business equipment is "free"?
No. Bonus depreciation allows you to deduct the cost of qualifying equipment sooner, but you still have to pay for the equipment. A deduction reduces taxable income—it doesn't reimburse you for the purchase.
Should I buy equipment just because it's deductible?
Generally, no. Purchase equipment because it improves your practice or replaces something you already planned to upgrade. The tax deduction is a benefit, but it shouldn't be the primary reason for the purchase.
What's the new Form 1099-NEC reporting threshold?
Beginning with the OBBB, businesses generally issue Form 1099-NEC only when they pay a qualifying independent contractor $2,000 or more during the calendar year. Even if you expect to pay less than that, it's still a good idea to collect a completed Form W-9 before making the first payment.
If I don't have to issue a Form 1099-NEC, is the expense still deductible?
Yes. The reporting threshold and the tax deduction are two different rules. A legitimate business expense can still be deductible even if you aren't required to issue a Form 1099-NEC.
What records should I keep for my therapy practice?
Maintain current bookkeeping, separate business bank accounts, digital copies of receipts, mileage logs, monthly financial statements, and documentation for major business decisions. If you operate through an LLC or S corporation, keep annual meeting minutes and records of significant business actions as well.
Conclusion
The One Big Beautiful Bill created several new opportunities for therapists in private practice, but the biggest lesson isn't about any single tax deduction.
Successful tax planning starts long before your return is prepared. It begins with choosing the right business structure, keeping accurate records, understanding how your practice operates, and making thoughtful decisions throughout the year.
Whether it's maximizing the Qualified Business Income deduction, timing the purchase of new equipment, deciding whether to hire an employee or an independent contractor, or simply maintaining good bookkeeping, the greatest tax savings come from planning and implementing ahead of time.
The therapists who benefit most from the OBBB won't necessarily be those who know every page of the new law. They'll be the ones who consistently treat their practice like a business, review their tax strategy before year-end, and ask good questions before making important financial decisions.
The tax law will continue to change. Good business practices never go out of style. They remain one of the best investments you can make in both your practice and your long-term financial success.
Tax law changes like the OBBB make it clear how much a solid financial foundation matters for therapists in private practice. Lettuce helps you track every deductible expense in real time, so nothing slips through the cracks when it's time to calculate your QBI deduction or plan a big equipment purchase. And if you're weighing whether an S corporation makes sense for your practice, Lettuce's S Corp automation handles the reasonable-salary calculations, payroll, and bookkeeping so you can grow your team with confidence. Try Lettuce and get started today!
This article is part of the Tax Strategy Series, featuring in-depth, practical guidance from Diane Kennedy, CPA—bestselling author, strategic tax consultant, and founder of USTaxAid and KennedyTax.tax. Explore the full series and catch every installment here.
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