7 Tax Mistakes Healthcare Business Owners Make Before Tax Season (And How to Fix Them)

Most healthcare practice owners overpay tens of thousands in taxes every year. It's not because they're doing anything wrong, but because they wait too long to act.

By the time tax season arrives, many of the most powerful tax-savings strategies are already off the table. Entity elections have closed. Compensation decisions are locked in. Retirement opportunities have quietly expired.

January is the narrow window where you can still correct costly mistakes from last year and position your practice to pay less in the year ahead.

As part of the launch of Passage Health Tax & Advisory by Uprise, this article covers the 7 most expensive mistakes we see healthcare practice owners make during tax season, and what to do about them while there's still time.

Mistake #1: Missing the S-Corp election deadline

The problem

Many healthcare practices operate as sole proprietorships or single-member LLCs, paying 15.3% self-employment tax on all net income. An S-Corp election can save $15,000-$25,000 annually for practices earning $150,000+ in profit.

Real example: An ABA practice owner in Colorado earning $180,000 in profit paid $27,540 in self-employment tax in 2024. After electing S-Corp status in early 2025, they'll save approximately $18,000 in 2026 by taking a reasonable salary of $90,000 and distributions for the remainder.

The fix

• Review your 2025 net income from your accounting system
• If net income exceeded $100,000, calculate S-Corp savings potential
• File Form 2553 by March 15, 2026 to elect S-Corp status for 2026
• Work with a tax advisor to determine your reasonable salary

Why timing matters: You can't retroactively elect S-Corp status for 2025. Missing the March 15 deadline means forfeiting these savings for all of 2026.

Mistake #2: Not maximizing retirement contributions

The problem

Healthcare business owners often contribute to retirement accounts at the last minute or not at all. For 2026, you can contribute up to $72,000 to a SEP-IRA or Solo 401(k) if you're under 50 and $80,000 if you're 50+. These contributions directly reduce taxable income.

Real example: A behavioral health practice owner earning $200,000 contributed only $7,000 to an IRA in 2024. In January 2026, they funded the full $70,000 SEP-IRA limit for 2025, cutting their tax bill by approximately $24,000.

The fix

• Calculate your maximum based on your net self-employment income (post-tax/expenses) to find your 25% cap
• SEP-IRA contributions can be made up to your tax filing deadline, including extensions
• Solo 401(k) employer contributions can also be made up to filing
• Plan in Q4 so you're not guessing in April

Why timing matters: In January 2026, you can still make 2025 SEP-IRA and Solo 401(K) employer contributions. The window for 2025 employee deferrals closed on December 31, 2025.

Mistake #3: Forgetting healthcare-specific deductions

The problem

Healthcare business owners miss thousands in industry-specific deductions. These aren't generic business expenses—they're deductions tied to how healthcare practices operate.

Common missed deductions include:

Continuing Education & Licensing

• CEUs and supervision hours for credential maintenance
• Conference registrations, travel, and lodging
• Professional license renewals and certifications

Insurance premiums

• Malpractice and general liability insurance
• Cyber liability insurance for HIPAA compliance
• Workers' compensation insurance

Home office deductions for telehealth

If you conduct telehealth sessions from home, you can deduct a portion of:

• Rent or mortgage interest
• Utilities and internet
• Home insurance and property taxes

Equipment and technology

• Assessment kits, clinical materials, and specialized equipment
• Computers, tablets, and mobile devices
• EHR, billing, and other software subscriptions

Real example: An ABA practice owner conducting 40% of sessions via telehealth claimed a home office deduction for 200 square feet of their 2,000 sq ft home (10% of space). With $30,000 in annual housing-related costs, the $3,000 deduction saved roughly $1,000 in taxes.

The fix

• Review your bank and credit card statements for the full year
• Create a separate "healthcare-specific deductions" worksheet
• Document telehealth percentage and home office usage
• Gather receipts for professional development, insurance, and equipment
• Review all recurring charges on your credit cards for deductible business software

Mistake #4: Incorrect owner compensation structure

The problem

S-Corp owners must pay themselves a "reasonable salary" before taking distributions. Pay yourself too little, and you risk IRS penalties. Pay yourself too much, and you're overpaying payroll taxes.

Real example: An ABA clinic owner running an S-Corp with $300,000 in profit paid themselves only $40,000 in salary and took $260,000 in distributions. The IRS considers reasonable BCBA compensation to be $90,000-$120,000. They faced a payroll tax audit and owed $18,000 in back taxes plus penalties.

The fix

• Research reasonable compensation for your role (BCBA, practice owner, clinic director)
• Use industry salary data from BACB, BHCOE, or similar sources
• Document how you determined your salary
• Adjust salary before the tax year begins

Reasonable salary benchmarks for healthcare business owners

• Solo BCBA providing direct services: $80,000-$100,000
• Practice owner + direct services: $90,000-$130,000
• Practice owner, primarily administrative: $100,000-$150,000

Why timing matters: You can't retroactively adjust your 2025 salary. If your S-Corp compensation structure was incorrect in 2025, you'll need to file correctly and potentially face penalties. But you can fix your 2026 structure right now. Passage Health Tax & Advisory by Uprise can advise on this.

Mistake #5: Missing quarterly estimated tax payments

The problem

Healthcare business owners often focus on year-end taxes and forget quarterly estimated payments. Underpayment penalties can add 3-8% to your tax bill, even if you eventually pay the full amount.

Real example: A practice owner owed $45,000 in taxes for 2024 but made no estimated payments. They paid the full amount at filing time in April 2025 but still owed $1,800 in underpayment penalties.

The fix for 2025

• Calculate your 2025 total tax liability using your accounting data
• If you didn't make quarterly payments, you'll owe underpayment penalties
• File and pay by the April deadline to minimize additional interest

The fix for 2026

• Quarterly deadlines: April 15, June 16, September 15, January 15, 2027
• Pay at least 100% of your 2025 tax liability (110% if income >$150,000) to avoid penalties
• Use your monthly revenue data to calculate quarterly obligations

How to estimate quarterly payments

Check your revenue reports from your practice management system. If you're consistently profitable, set aside 25-30% of your net income each quarter for estimated taxes. This prevents year-end surprises and penalty charges. Passage Health Tax & Advisory by Uprise includes quarterly tax estimates.

Mistake #6: Not tracking mileage properly

The problem

Healthcare providers often drive between clinic locations, client homes, or supervision sites. At $0.70/mile for 2025 and $0.72/mile for 2026, mileage deductions add up quickly. Purely estimated or memory-based reconstruction after the fact generally doesn't satisfy IRS requirements.

Real example: A BCBA driving to client homes, schools, and multiple clinic sites drove approximately 12,000 business miles in 2024 but only tracked 3,000 miles. Lost deduction: 9,000 miles × $0.67 = $6,030, costing approximately $2,000 in additional taxes.

The fix

• Reconstruct 2025 mileage where possible using contemporaneous supporting records (calendars, session logs, EHR data), understanding this is less defensible than real-time tracking
• Begin real-time tracking for 2026 using apps like MileIQ or Everlance
• Track date, starting location, destination, business purpose, and miles

What counts as business mileage

• Clinic to client homes or schools
• Primary clinic location to satellite locations
• Office to banking, post office, supply stores
• Home to temporary work locations (if you have a home office)

What doesn't count

• Home to your primary office (this is commuting)

Why timing matters: The IRS requires "contemporaneous" records, meaning you need to track mileage at or near the time of the trip. You can't reconstruct an entire year in February 2026 and expect it to hold up in an audit.

Mistake #7: Waiting until March to think about tax planning

The problem

Most tax optimization strategies require action during the tax year, not after it ends.

What you can still do for 2025

• Make eligible retirement contributions
• Pay outstanding 2025 business expenses before your filing deadline
• Purchase and place in service business equipment (using bonus depreciation rules)
• Accelerate medical insurance premium payments if self-employed

What you can no longer do for 2025

• Elect S-Corp status
• Make Solo 401(k) employee deferrals
• Set up and contribute to certain retirement plans
• Establish Augusta Rule home office rental arrangements

What to plan for 2026

• Entity structure changes (S-Corp election due by March 15, 2026)
• Retirement plan setup (some plans need to be established by December 31, 2026)
• Quarterly tax payments
• Expense and mileage tracking systems

The practices that save the most on taxes aren't the most profitable—they are the most proactive.

Your next step: Book a complimentary tax strategy call

Want help prioritizing this? If you're a Passage Health customer, you have access to complimentary tax strategy calls with Uprise—tax advisors who specialize in working with healthcare business owners.

These calls help you:

• Identify which of these mistakes apply to your practice
• Calculate potential savings for 2025 and 2026
• Create a clear, deadline-driven action plan
• Help decide whether filing or extending makes the most sense

What to expect: No prep. No judgment. Just a straightforward conversation about your practice.

Book by February 15 for priority scheduling. Availability becomes limited as tax season progresses and deadlines approach.

Book your complimentary tax strategy call

Prefer to learn more? Join us for our live webinar on January 22: The 2025/2026 Tax Bridge for Healthcare Business Owners. Register here