Quarter 2 Estimated Taxes Are Due June 15: What Therapy Practice Owners Should Know

If you're a therapist in private practice, the June 15 estimated tax deadline is one of the most important tax dates of the year.

Many practice owners know they should be making estimated tax payments, but they're often unsure how much to pay, what happens if they miss a payment, or whether they're setting aside enough money for taxes.

Here's what you should know.

What Are Estimated Tax Payments?

Unlike employees, self-employed therapists don't have taxes withheld from their income throughout the year. Instead, the IRS expects you to make periodic payments as income is earned. These payments are commonly referred to as quarterly estimated taxes or just quarterly taxes.

How Much Should You Pay?

There are two common approaches:

Option 1: Pay Based on Current Year Income

Using your income so far this year, you can estimate what you'll earn for the full year and calculate your tax payments based on that amount. This approach can be especially helpful if your income is significantly lower than last year, since it may allow you to reduce your estimated tax payments and keep more cash available for your practice.

Option 2: Use the Safe Harbor Method

Under the federal safe harbor rules, taxpayers can avoid generally underpayment penalties by paying at least 100% of their prior year's total tax bill through tax withholding and/or estimated tax payments (or 110% if your income exceeds certain thresholds). This approach is popular because it's simple and predictable.

What If You Didn't Receive Estimated Payment Instructions?

If your tax return was self-prepared or your preparer didn't provide estimated payments, a simple starting point is to review your prior year's total tax bill and divide it by four. This won't be perfect in every situation, but it often provides a reasonable estimate for many practice owners.

What Happens If You Miss Estimated Tax Payments?

If you don't make estimated tax payments when required, you may owe penalties and interest. Even if you catch up in a later quarter, it won’t eliminate the penalty entirely. The IRS generally expects taxes to be paid as income is earned throughout the year.

The Safe Harbor Trap

One mistake I frequently see is practice owners relying on the prior year safe harbor amount while their income is increasing significantly. While the safe harbor may help avoid underpayment penalties, it doesn't necessarily mean you've set aside enough money to pay your actual tax bill. If your practice is growing, make sure you're saving additional funds for taxes throughout the year. Otherwise, you could end up with a large balance due next April despite making all of your estimated payments.

What If You're Already Behind?

I've worked with business owners who fell behind because they didn't set aside enough money during the year. There are strategies that can sometimes reduce penalties and help business owners get back on track. However, it's almost always easier and less stressful to address the issue early. Tax problems tend to compound over time. What starts as one missed payment can quickly become a much larger problem if left unaddressed.

Final Thoughts

Estimated tax payments don't have to be complicated, but they do require planning.

Many practice owners see their income fluctuate throughout the year. You may have periods where you're building a caseload, hiring another therapist, or waiting on insurance reimbursements. Because of that, estimates based on last year's tax return may not always be the best fit for your current situation.

If your income has changed significantly since last year, or you're unsure whether the safe harbor method still makes sense for your practice, now is a good time to review your estimates before the June 15 deadline. And if you'd like help reviewing your estimated tax payments or planning for an upcoming tax bill, feel free to reach out. I work with therapists in private practice and would be happy to discuss your situation.