How To Start A Mental Health Practice In Texas
In the event that you’re relocating your practice from another state, one additional step you must take is determining the process of fulfilling tax obligations in multiple states. This piece provides the fundamental requirements to establish and initiate your therapy practice in Texas. For comprehensive guidance on budgeting, practice marketing, and client billing, refer to our comprehensive guide titled How to Start a Therapy Practice.
1. Local Zoning Laws and Regulations in Texas
With 254 counties, surpassing any other state, and 1,221 municipalities, Texas holds the record for the highest number of counties and localities. Before finalizing a location for your therapy practice, even if it is your own residence, it is crucial to ensure that the local zoning regulations permit its operation.
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 request a zoning variance. Essentially, a variance serves as an exemption to zoning laws.
To obtain information regarding the need for a variance, the types of zoning recognized by your town or city, and the nature of businesses permitted in that area, it is advisable to contact your local municipality.
2. Business Name Search in Texas
In Texas, the management of business names is handled at both the county and state levels, depending on the structure of your business.
For sole proprietorships or general partnerships, filing a Certificate of Assumed name is required at the county clerk’s office. A comprehensive list of Texas county clerks’ offices, along with their contact information, is available.
On the other hand, LLCs, corporations, and other business structures need to file Assumed Name Certificates with the Secretary of State.
Are you wondering if name registration is necessary at all? If your therapy practice operates as a sole proprietorship and you intend to use your own name, such as “Jane Smith,” you can do so without registering a business name.
However, if you prefer a name other than your own, such as “Jane Smith Counseling,” or if you switch to a different business structure like an LLC, registering an assumed name becomes necessary.
To get an assumed for your therapy practice:
- Ensure to conduct a name search to verify that your desired name is not already in use.
- (Optional) If you are filing with the Secretary of State instead of the County Clerk, you have the option to reserve an assumed name by submitting Form 501, Application for Reservation or Renewal of Reservation of an Entity Name.
- If your business will be a sole proprietorship or a general partnership, file an Assumed Name Certificate with the County Clerk. For corporations, LLCs, or other entities, file the Assumed Name Certificate with the Department of State. Contact your County Clerk’s office to obtain instructions for registering an assumed name for your sole proprietorship. For all other business structures, submit Form 503, Assumed Name Certificate, to the Secretary of State.
- Make the required payment. The fee for registration with the County Clerk’s office will vary depending on the county of registration. If you are registering with the Department of State, the fee for filing an Assumed Name Certificate is $25.
- Remember to renew your name as assumed names automatically expire after 10 years.
To upload paperwork online and pay fees with your credit card, use the Texas Secretary of State’s SOSUpload system.
3. Business Structure in Texas
Every state acknowledges and registers various business structures, also known as “entity types.” The chosen business structure of your practice has implications on its taxation and ownership eligibility.
In the case of being a licensed mental health practitioner in Texas, your therapy practice’s available business structure options are:
- Professional association (PA)
- Professional limited liability company (PLLC)
- Limited liability partnership (LLP)
Alternatively, you have the option to work as a sole proprietor or establish a general partnership where all members share equal financial and legal responsibility. However, it’s important to note that these business structures do not provide legal protection in the event of malpractice lawsuits. On the contrary, the LLP, PLLC, and PA business structures are specifically designed to offer such protection.
To gain a comprehensive understanding of all entity types available in Texas, including those without liability protection or those prohibited for licensed therapists, refer to the Governor’s Small Business Handbook.
For further information, we recommend reading our article titled “How to Choose a Business Entity for Your Therapy Practice.”
Professional association
According to the Texas Medical Association, it is their belief that the doctor-patient relationship should not be established solely through a corporate entity. This is the reason why professional associations were established.
From a technical standpoint, professional associations do not fall under the category of partnerships or corporations. Nevertheless, they are subject to taxation and governance similar to corporations, and they have the option to elect S corporation status.
Professional associations offer limited protection to all members in the event of a lawsuit against one member. However, it should be noted that each individual belonging to the association remains personally liable for their own malpractice.
Limited Liability Partnership (LLP)
In contrast to a PA, an LLP requires a minimum of two individuals as members. Similar to a PA, an LLP provides limited liability protection for its partners. If a partner is sued, their liability is limited to the extent of their investment in the partnership, ensuring that their personal assets are safeguarded. Additionally, an LLP is treated as a pass-through entity, akin to other partnership structures.
Professional Limited Liability Company (PLLC)
The professional limited liability company (PLLC) is nearly identical to a standard LLC, with the key distinction that it is tailored for licensed professionals, including therapists. It can be established by one or multiple individuals.
A PLLC provides limited liability protection to its individual members in the event of legal or financial disputes faced by the PLLC as a whole.
Compared to a professional association, a PLLC may offer greater flexibility in terms of governance and taxation.
4. Register Your Business in Texas
Register your therapy practice with the Alaska Department of Commerce, Community, and Economic Development. File the necessary documents, such as Articles of Organization for an LLC or Articles of Incorporation for a PC. Pay any required fees associated with the registration process. This step will officially establish your business as a legal entity in Alaska.
- File the business registration with the state
- Pay the filing fee
Alongside the filing fees, your newly formed business entity may also be liable for franchise tax. In Texas, businesses earning over $1.18 million in revenue are obligated to pay franchise tax. For a comprehensive understanding of Texas franchise tax, you can refer to the detailed explanation provided in the article by Peisner Jonson mentioned earlier. Here is a breakdown of the franchise tax requirements for each of the business structures discussed in section 3.
Register a professional association in Texas
Filing fees: $750
- Select a business name.
- Designate a registered agent who is at least 18 years old and has a physical address within the state. This individual will be responsible for receiving official communications from the State.
- Submit Form 204 (Certificate of Formation, Professional Association) to the Secretary of State.
- Make the necessary filing fee payments.
To conveniently upload your paperwork online and pay fees using a credit card, utilize the SOSUpload system provided by the Texas Secretary of State.
Register an LLP in Texas
Filing fees: $200 per partner + $ franchise tax (annually)
- Select an appropriate business name.
- Appoint a registered agent who meets the age requirement of being over 18 and has a valid address within the state. This individual will assume the responsibility of receiving official communications from the State.
- Complete and submit Form 701 (Registration of Limited Liability Partnership) to the Secretary of State.
- Fulfill the necessary filing fee requirements.
- Prepare a partnership agreement, which may not be legally mandated but can aid in maintaining organization and resolving any potential disputes among partners.
Utilize the Texas Secretary of State’s SOSUpload system to conveniently upload your paperwork online and make fee payments using a credit card.
Register a PLLC in Texas
Filing fees: $300 + $ franchise tax (annually)
- Select a suitable business name.
- Appoint a registered agent who meets the requirements of being over 18 years old and having a valid address within the state. This individual will be responsible for receiving official communications from the State.
- Submit Form 206 (Certificate of Formation, Professional LLC) to the Secretary of State.
- Make the necessary filing fee payments.
Utilize the Texas Secretary of State’s SOSUpload system to conveniently upload your paperwork online and pay fees using a credit card.
5. Business Licenses & Permits in Texas
To conduct your therapy practice in Texas, it is important to obtain the necessary licenses or permits, which are regulated at the federal, state, and local levels.
Fortunately, therapy practices in Texas do not need any specific federal permits or licenses to operate.
At the state level, Texas does not issue or mandate general business licenses, except for dyslexia therapy. Mental health practitioners, apart from their standard licensure, do not require additional operating licenses.
On the local level, which refers to your municipality such as a town or city, you might need to obtain a business license for your operation. The specific requirements for business licenses vary across municipalities. To gather detailed information, it is recommended to contact your local municipal government.
6. Business Insurance in Texas
The following types of business insurance are highly recommended for therapy practices operating in Texas:
- General liability insurance
- Commercial property insurance
- Business income insurance
- Professional liability insurance
- Texas worker’s compensation insurance
During your insurance search, it is advisable to consider a business owner’s policy (BOP) that typically encompasses three essential types of coverage: general liability, commercial property, and business income.
General liability insurance safeguards you in the event of any damage caused to someone else’s property or person.
Commercial property insurance provides protection for 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 offers coverage for income loss resulting from specific circumstances, including natural disasters like fire or storm damage, as well as man-made disasters such as theft.
Professional liability insurance shields you in situations where you may face lawsuits for issues like libel or slander, mishandling patient records, offering inaccurate advice, or causing harm during professional practice.
Although Texas does not legally require you to have worker’s compensation insurance if you have employees, it is essential to adhere to specific rules for notifying both new and existing employees. Failure to have worker’s compensation insurance leaves you susceptible to potential lawsuits if an employee is injured on the job. For more information, refer to the worker’s compensation insurance guide provided by the Texas Department of Insurance.
7. Business Taxes in Texas
In Texas, individual income tax is not levied; however, franchise tax is applicable. For an in-depth understanding of Texas franchise tax, refer to the detailed article by Peisner Jonson.
Discover the process of fulfilling tax obligations in multiple states
If you initiated your therapy practice in a different state and are relocating to Texas, or if you currently operate in Texas and are planning to move to another state, you must determine how to meet tax requirements in multiple states.
The regulations vary based on the states where you conduct business throughout the year and the duration of your presence in each state. For comprehensive insights into how relocating to a different state impacts your taxes as a therapist, refer to the resource titled “How Moving to a Different State Impacts Your Taxes as a Therapist.”
Please note that this article is intended solely for informational purposes and should not be considered as legal, business, or tax advice. It is advisable for each individual to consult their own attorney, business advisor, or tax advisor regarding matters discussed in this article.
