How To Start A Mental Health Practice In Massachusetts
If you are relocating your practice from another state, there is an additional step you must take: determining the process of paying taxes in multiple states.
This article provides the essential information required to initiate and operate a therapy practice in Massachusetts. For guidance on budgeting, marketing your practice, and managing client billing, refer to our comprehensive guide, “How to Start a Therapy Practice.”
1. Local Zoning Laws and Regulations in Massachusetts
Massachusetts boasts 14 counties and 351 municipalities. Prior to finalizing the location for your therapy practice, even if it is your own residence, it is crucial to ensure that the local zoning regulations permit operating there.
In situations where conducting a business in a specific area is typically prohibited, such as operating a home business in a residential zone, you have the option to apply for a zoning variance. A variance serves as an exception to the established zoning laws.
To obtain information regarding the necessity of applying for a variance, the types of zoning recognized in your town or city, and the specific business activities allowed in a given location, please reach out to your local municipality.
2. Business Name Search in Massachusetts
If you have a therapy practice operating as a sole proprietorship or general partnership and plan to conduct business under a name other than your own or your partners’, it is mandatory under Massachusetts law to register a fictitious name.
Here is a detailed procedure to follow:
- Conduct a thorough search for existing company names to avoid attempting to reserve a name that is already in use.
- Complete an Application of Reservation of Name and submit it either in person or by mail to the Secretary of the Commonwealth.
- Pay the required fee of $30 for reserving the name.
3. Business Structure in Massachusetts
Various business structures, also known as “entity types,” are acknowledged and registered differently in each state. The chosen business structure for your practice has an impact on the taxation of its income and the eligibility of individuals to possess shares in the practice.
Within the state of Massachusetts, you have the following options for selecting a business structure:
- Sole proprietorship
- General partnership
- Professional corporation*
- Professional limited liability company (PLLC)*
- Professional limited liability partnership (PLLP)*
Licensed professionals, such as psychologists and allied mental health professionals, who desire to establish corporations or register limited liability companies (LLCs) or limited liability partnerships (LLPs) in the Commonwealth of Massachusetts, are required to establish the corresponding “professional” versions of these structures.
To access a comprehensive side-by-side comparison, refer to the business structure comparison chart provided by the Massachusetts Secretary of the Commonwealth.
However, please note that this list serves as an introductory guide. It is advisable to consult with your accountant and, if needed, a lawyer to receive guidance in selecting the most suitable business structure.
For further details, you may find our article titled “How to Choose a Business Entity for Your Therapy Practice” informative.
Sole Proprietorship
By venturing into entrepreneurship, you automatically assume the status of a sole proprietor. As a sole proprietorship, your business is indistinguishable from yourself, meaning that all income and losses are attributed solely to you.
Sole proprietorships represent the most basic form of business structure, yet they lack any legal or financial safeguards.
General Partnership (GP)
Within a general partnership, all individuals involved are classified as general partners, signifying that they bear equal responsibility for both legal and financial liabilities.
Professional Corporation
In the Commonwealth of Massachusetts, professionals are generally obligated to establish professional corporations, which operate similarly to standard corporations but offer additional safeguards in the event of malpractice lawsuits against shareholders. It is required that all shareholders in a professional service corporation hold licenses and practice the same profession.
There are two types of professional corporations: C corporations and S corporations. C corporations have independent taxation of their income, distinct from the shareholders. However, C corporations can choose to obtain S corporation status by submitting IRS Form 2553.
S corporations, recommended by us for various reasons, distribute tax liability to individual shareholders. Thus, at the federal level, we advise its clients to establish S corporations.
Professional Limited Liability Company (PLLC)
The LLC business structure offers comparable liability protection to a corporation, along with the flexibility to choose different taxation methods. Upon consultation with your accountant, you may receive a recommendation to elect either S corporation or partnership taxation.
The PLLC business structure closely resembles an LLC, with the exception that every member must hold a professional license from the State and provide certification proof during the filing of the PLLC’s articles of formation with the Secretary of the Commonwealth. Therapists fall under the category of professionals licensed by the state.
The PLLC business structure grants additional liability protection to all members in the event of legal proceedings involving the organization, such as a malpractice lawsuit filed by a patient.
Professional Limited Liability Partnership (PLLP)
A limited liability partnership (LLP) shares similarities with a general partnership but offers additional safeguards. Consider the PLLP as a specialized variation of a general partnership, providing enhanced liability protection specifically designed for professionals.
The PLLP structure ensures that each partner is shielded from the consequences of professional negligence committed by other partners. For example, if a client files a lawsuit against one partner within a PLLP, the remaining partners are not held liable for the claims.
4. Register Your Business in Massachusetts
To register your business in Massachusetts, you need to do two things:
- File the business registration with the Commonwealth
- Pay the filing fee
Although certain business structures can be registered online in Massachusetts, professional business structures such as professional corporations, PLLCs, and PLLPs require the submission of paper documents for registration.
Below is a breakdown of the registration process for each of the business structures discussed in section 3 above.
Form a sole proprietorship in Massachusetts
Filing fees: No cost to form, fees apply to register an assumed name
In Massachusetts, forming a sole proprietorship does not require any additional steps apart from the optional process of registering an assumed name.
Form a general partnership in Massachusetts
Filing fees: No cost to form, fees apply to register an assumed name
In Massachusetts, forming a general partnership does not involve any additional steps beyond registering an assumed name. However, it is advisable to consider creating a partnership agreement to effectively address potential disputes among partners in the future.
Incorporate in Massachusetts (professional corporation)
The following fees apply: $275 for filing Articles of Incorporation, an additional $25 for appointing a registered agent, and $125 per year for filing an annual report.
- Select a business name.
- Designate a registered agent who is at least 18 years old and has an address within the state. This individual will receive all official communications from the State.
- Fill out a Certificate by Regulatory Board that includes the names and professions of all corporate officers.
- Submit your Certificate by Regulatory Board to the relevant board through the Bureau of Health Professions Licensure.
- Complete your Articles of Organization and include the signed Certificate by Regulatory Board.
- Submit your Articles of Organization and all associated documents to the Secretary of the Commonwealth.
- Pay the required filing fee.
Once you’ve incorporated in Massachusetts, you can elect S corporation status by filing IRS Form 2553.
Register a Professional Limited Liability Company (PLLC) in Massachusetts
Filing fees: $500 to register, plus $500 each year to file an annual report
- Select a business name.
- Nominate a registered agent, who must be at least 18 years old and have a state address, responsible for receiving official communications from the State.
- Complete a Certificate by the Regulatory Board, which includes the names and professions of all corporate officers.
- Submit your Certificate by the Regulatory Board to the appropriate board through the Bureau of Health Professions Licensure.
- Fill out your Certificate of Organization and include the signed Certificate by the Regulatory Board.
- Submit your Certificate of Organization and all relevant documents to the Secretary of the Commonwealth.
- Remit the required filing fee.
Register a Professional Limited Liability Partnership (PLLP) in Massachusetts
Filing fees: $500 to register, plus $500 each year to file an annual report
- Select a business name.
- Designate a registered agent who is at least 18 years old and possesses an address within the state. They have the responsibility of receiving all official communications from the State.
- Complete a Certificate provided by the Regulatory Board, which provides a list of all corporate officers and their respective professions.
- Submit your Certificate to the relevant board through the Bureau of Health Professions Licensure.
- Fill out your Certificate of Organization and ensure that your signed Certificate provided by the Regulatory Board is attached.
- File your Certificate of Organization and all accompanying documents with the Secretary of the Commonwealth.
- Make the necessary payment for the filing fee.
5. Business Licenses & Permits in Massachusetts
Operating a therapy practice in Massachusetts may necessitate obtaining licenses or permits, which are regulated at the federal, state, and local levels.
Fortunately, therapy practices in Massachusetts do not require any specific federal permits or licenses to operate. Additionally, apart from the customary licensure for mental health practitioners, they are not subject to state-level permitting or licensing requirements.
However, at the local level, such as your municipality (town, city, etc.), there might be a requirement to obtain a business license in order to operate. It is advisable to contact your local permitting office for more information and specific details.
6. Business Insurance in Massachusetts
The following types of business insurance are highly recommended for therapy practices operating in Massachusetts:
- General liability insurance
- Commercial property insurance
- Business income insurance
- Professional liability insurance
- Massachusetts worker’s compensation insurance
When exploring insurance options, consider obtaining a business owner’s policy (BOP), which typically encompasses three fundamental types of coverage: general liability, commercial property, and business income.
General liability insurance provides protection in the event of damage caused to someone else’s property or person. Since the Commonwealth of Massachusetts does not impose a limit on liability lawsuit rewards, it is crucial to ensure adequate coverage, aiming for a minimum of $1 million.
Commercial property insurance safeguards the property owned by your therapy practice, such as computers, business phones, or office furniture. It also extends coverage to the building where your practice operates, regardless of whether it is owned or rented.
Business income insurance provides coverage for income loss resulting from specific circumstances, including natural disasters like fire or storm damage, as well as man-made disasters like theft.
Professional liability insurance offers protection in the event of lawsuits related to libel or slander, mishandling patient records, providing inaccurate advice, or causing harm during the practice of your profession.
If you employ individuals, it is a legal requirement to provide them with Massachusetts worker’s compensation insurance. This type of insurance covers medical expenses, lost wages, and ongoing care in the event of an employee being injured on the job.
7. Business Taxes in Massachusetts
All businesses generating income in Massachusetts must fulfill their obligation to pay state taxes. If your state tax liability exceeds $400, you are required to make quarterly installment payments to cover that amount.
If you’re seeking guidance on how to commence the process, refer to the resource titled “How to Pay Income Tax in Every State as a Therapist.”
Learn how to pay taxes in multiple states
If you have established your therapy practice in a state other than Massachusetts and are now relocating to Massachusetts, or if you currently operate in Massachusetts and are planning to move to another state, you will need to navigate the complexities of paying taxes in multiple states.
The tax requirements vary depending on the states in which you conduct business throughout the year and the duration of your presence in each state. To gain a better understanding of how a change in residency affects your tax obligations as a therapist, refer to the information regarding the impact of relocating to a different state.
Please note that this post is intended for informational purposes only and should not be construed as legal, business, or tax advice. It is recommended that individuals consult their own attorney, business advisor, or tax advisor regarding the matters discussed in this post.
