More Tax Planning FAQs
What is the S-Corp election and how does it reduce self-employment tax?
An S-Corp election allows the owner to split income between a reasonable salary (subject to 15.3% FICA) and distributions (not subject to FICA). For a business owner with $200,000 in net profit paying an $80,000 salary, the annual SE tax savings are approximately $15,500–$18,500. The S-Corp must file
Form 2553 within 75 days of formation.
What is the Section 199A QBI deduction and how does it apply?
The §199A deduction allows pass-through business owners to deduct up to 23% of qualified business income (QBI) from taxable income under OBBBA. For taxpayers above $403,500 (MFJ) in 2026, the deduction is limited to the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of qualified property.
What retirement plan options are available for self-employed professionals?
Self-employed professionals can establish a Solo 401(k) (up to $70,000 in 2026), a SEP-IRA (25% of net self-employment income up to $70,000), a SIMPLE IRA ($16,500 + $3,500 catch-up), or a Defined Benefit Plan (up to $280,000+ depending on age). The Solo 401(k) is the best option for most self-employed professionals.
How does the home office deduction work for self-employed professionals?
Self-employed professionals who use a dedicated home office space exclusively and regularly for business qualify for the home office deduction under §280A. The deduction is calculated as a percentage of home expenses equal to the office square footage divided by total home square footage. The simplified method allows $5/sq ft up to 300 sq ft ($1,500 maximum).
What vehicle deductions are available for self-employed professionals?
Self-employed professionals can deduct vehicle expenses using either the standard mileage rate (70 cents/mile in 2026) or actual expenses. Vehicles with a GVWR over 6,000 lbs qualify for §179 expensing and bonus depreciation without luxury auto limits. A mileage log must be maintained for either method.
What is the Augusta Rule and how can it benefit business owners?
The Augusta Rule (§280A(g)) allows homeowners to rent their primary or secondary residence to their business for up to 14 days per year. The rental income is completely tax-free to the homeowner, and the business deducts the rent as a business expense. At $2,000–$3,000/day for 14 days, this strategy generates $28,000–$42,000 of tax-free income.
How does cost segregation apply to business owners who own real estate?
Cost segregation reclassifies building components into shorter depreciation categories eligible for bonus depreciation. For a $1M commercial property, cost segregation typically identifies $150,000–$250,000 of accelerated depreciation, generating $60,000–$100,000 in first-year deductions at the 100% bonus depreciation (restored by OBBBA for property placed in service after Jan 19, 2025) rate in 2026.
What is the self-employed health insurance deduction?
Self-employed professionals can deduct 100% of health insurance premiums (for themselves, their spouse, and dependents) as an above-the-line deduction under §162(l). This deduction reduces AGI and is available even if the taxpayer does not itemize. S-Corp owners must include premiums in W-2 wages before claiming the deduction.
How should a self-employed professional handle estimated tax payments?
Self-employed professionals must make quarterly estimated tax payments by April 15, June 15, September 15, and January 15. The safe harbor is 100% of prior year tax (110% if prior year AGI exceeded $150,000). Failure to pay sufficient estimated taxes results in an underpayment penalty under §6654.
What is the excess business loss limitation for pass-through owners?
Under §461(l), pass-through business owners cannot deduct business losses exceeding $305,000 (single) or $610,000 (MFJ) in 2026 against non-business income. Excess losses are treated as an NOL carryforward to the following year.
How does the net investment income tax (NIIT) affect self-employed professionals?
The 3.8% NIIT applies to net investment income for taxpayers with MAGI above $200,000 (single) or $250,000 (MFJ). Active business income and wages are not subject to the NIIT. Self-employed professionals who invest in rental properties or passive businesses should plan for the NIIT impact.
How should an occupational therapist or speech-language pathologist set up their retirement plan to maximize tax benefits in 2026?
For OT and SLP professionals, establishing a qualified retirement plan such as a Solo 401(k) or a SEP IRA can optimize tax savings. Under IRC §401(k), the 2026 elective deferral limit is $24,500 with an additional catch-up contribution of $7,500 if age 50 or older. Contributions reduce taxable income and self-employment tax exposure. Proper plan setup involves timely adoption before year-end and annual filings, with consideration of cash flow to maximize contributions.
What are the key steps for filing quarterly estimated taxes for self-employed occupational therapists and speech-language pathologists?
Self-employed OTs and SLPs must file
Form 1040-ES quarterly to avoid underpayment penalties. Estimated payments should account for both income tax and self-employment tax under IRC §1401. Calculations must include anticipated income, deductions such as the self-employed health insurance deduction under §162(l), and retirement plan contributions. Payments are due April 15, June 15, September 15, and January 15 of the following year, with adjustments made as income fluctuates.
What compliance risks should tax professionals be aware of when advising occupational therapists or speech-language pathologists regarding the Section 199A QBI deduction?
Advisors must carefully evaluate whether the OT or SLP qualifies as a specified service trade or business (SSTB) under IRC §199A(d)(2), as this affects QBI deduction eligibility. High-income clients exceeding the 2026 threshold of $364,200 (MFJ) face phased-out deductions. Proper documentation of income, expenses, and W-2 wages is critical. Failure to substantiate can trigger IRS audit scrutiny focused on QBI calculations and SSTB classification.
What documentation should be maintained to substantiate home office deductions for occupational therapists and speech-language pathologists?
Tax professionals should advise clients to keep detailed records including a floor plan indicating the exclusive use area, utility bills, mortgage or rent statements, and evidence of the home office's regular use in their practice. The deduction must comply with the exclusive and regular use tests per IRS guidelines. Maintaining a contemporaneous log of home office hours and business activities supports the deduction under IRC §280A(c).
How should tax professionals advise clients who operate both an occupational therapy practice and a speech-language pathology practice in terms of combining income for tax purposes?
If both practices are operated as separate entities, income and expenses must be reported separately unless they qualify to be aggregated under the QBI rules in IRC §199A(f). Aggregation requires common ownership, similar business activities, and proper IRS election. Combining may maximize deductions or simplify reporting but risks losing separate business distinctions important for liability and compliance.
How does electing S-Corp status for an occupational therapist compare to remaining a sole proprietor in terms of reasonable compensation requirements and audit risk?
S-Corp election mandates payment of reasonable compensation to owner-employees to avoid IRS reclassification of distributions as wages under IRC §162(m). For OTs, this means establishing compensation aligned with market rates to withstand audit scrutiny. Sole proprietors do not face this requirement but pay self-employment tax on all net earnings. While S-Corps can reduce self-employment tax, improper compensation levels increase audit risk.
What client questions should tax professionals ask to effectively plan tax strategies for occupational therapists and speech-language pathologists?
Professionals should inquire about the client's current business structure, income levels, and anticipated growth to evaluate entity election impacts. Asking about health insurance costs, retirement goals, and home office usage helps identify deductible expenses under IRC §162(l) and §280A. Furthermore, understanding the client's involvement in multiple practices or partnerships informs compliance with QBI aggregation and audit risk mitigation.
