Common Pitfalls That Cost Agency Owners Money And What to Do Instead
Tax season shouldn't be a scramble for receipts and a prayer that you didn't miss anything important. But for many home care and hospice agency owners, that's exactly what it becomes.
The problem isn't that you're careless. It's that you don't know what you don't know.
Home care and hospice agencies face tax challenges that general small businesses don't. Worker classification rules hit this industry harder than most. Deductions that seem obvious get missed because nobody told you to track them. And the structure of your business affects your tax bill in ways that aren't intuitive.
At Patrick Accounting, we work with home care and hospice agencies across the country. We see the same mistakes come up again and again. And they’re mistakes that cost agency owners thousands of dollars and sometimes create serious compliance problems.
In this article, we'll walk through the five most common tax mistakes we see in home care and hospice agencies and exactly how to avoid them. None of these are complicated to fix, but you have to know about them first.
Mistake #1: Misclassifying Caregivers as Independent Contractors
This is the most expensive mistake we see, and it's incredibly common.
The temptation is obvious: Classifying caregivers as 1099 independent contractors reduces payroll taxes, workers' comp costs, and administrative burden. On the surface, it looks like an easy way to cut costs.
The problem is that most caregivers don’t meet the IRS criteria for independent contractor status.
The IRS evaluates worker classification based on three key factors:
- Behavioral control: Do you control how the work is done? If you train caregivers, set schedules, or dictate how they provide care, they're likely employees.
- Financial control: Do you pay by the hour? Provide supplies and equipment? Reimburse expenses? These point toward employee status.
- Relationship type: Is this an ongoing relationship? Do you provide benefits? Is the work a key aspect of your business? All signs of employment.
For most home care agencies, caregivers meet nearly all the criteria for employee classification. They work set schedules, follow care plans you create, use your systems, and provide services that are core to your business.
Misclassifying employees as contractors can lead to back taxes, penalties, interest, and audits that go back multiple years. State agencies may add additional penalties. And in some cases, you can face personal liability.
We've seen agencies hit with six-figure assessments for worker misclassification. It's not worth the risk.
If you're unsure whether your caregivers are classified correctly, it's worth getting a professional review before the IRS does it for you. Our 1099 vs. W-2 Assessment can help you identify potential risks.
Misclassifying caregivers can trigger back taxes, penalties, and audits that put your entire agency at risk.
Mistake #2: Missing Common Tax Deductions in Home Care and Hospice
Every missed deduction is money left on the table. This usually isn't because the expenses don't exist, but because they aren't being tracked properly.
Here are some of the most commonly missed deductions in home care and hospice:
- Mileage and travel costs. Caregivers driving to patient homes? That mileage is deductible. But you need proper documentation, like date, destination, purpose, and miles driven.
- Training and certification. CEUs, certifications, orientation training, and compliance education are all deductible expenses.
- Medical supplies and equipment. From gloves to wound care supplies and monitoring equipment. If your agency provides it, track it.
- Uniforms and protective equipment. Scrubs, PPE, and name badges. These add up over the course of a year.
- Software and technology. EMR systems, scheduling software, EVV platforms, and communication tools are all deductible.
When these expenses aren’t tracked consistently, they don’t make it into your tax filings. And that directly increases what you pay.
The key to capturing these deductions is keeping business expenses separate from personal expenses. When funds get commingled, deductions get missed. Pay all business expenses from business accounts, and document everything.
Paying less in taxes doesn’t require you to do anything fancy. You just need to track what you spend and make sure every legitimate deduction gets captured. Good bookkeeping isn't glamorous, but it directly reduces your tax bill.
Don't overlook tax credits, either. Many home care agencies have qualified for the Work Opportunity Tax Credit (WOTC) when hiring workers from certain target groups, including veterans, long-term unemployed individuals, and recipients of government assistance programs such as SNAP or TANF. WOTC is currently authorized for employees who start work on or before December 31, 2025, and Congress is considering whether to extend it. During this 2026 hiatus, employers often continue screening new hires so they can claim credits if the program is renewed retroactively. Given the volume of hiring most agencies do, these credits can add up quickly when available, so ask your accountant whether you’ve claimed all eligible WOTC benefits for prior-year hires and how to handle screening going forward.
Missed deductions add up to thousands of dollars over time.
Mistake #3: Waiting Until Year-End to Plan for Taxes
If your tax strategy consists of gathering documents in March and hoping for the best, you're leaving money on the table. By that point, most of your opportunities to reduce your tax liability are already gone.
Effective tax planning happens throughout the year, not in the final weeks before the deadline.
A proactive approach looks like this:
- Quarterly reviews of your income and expenses so you know where you stand.
- Tax projections that estimate your liability before year-end so you can plan accordingly.
- Strategic timing of major purchases, retirement contributions, and other tax-impacting decisions.
- Setting aside money for taxes so you're never surprised by what you owe.
When you wait until year-end, your options are limited.
- That equipment purchase that could have reduced your taxable income? It’s too late.
- The retirement contribution you meant to make? The deadline’s passed.
- That entity structure change that would save you thousands? You should’ve done it months ago.
That’s why waiting until year-end limits your options.
With regular financial check-ins, you’ll have fewer tax surprises. You can’t look at monthly or quarterly check-ins with your accountant as an expense. Those regular check-ins are an investment that typically pays for itself in tax savings and avoided problems.
Tax planning only works when it happens throughout the year, not just at filing time.
Mistake #4: Choosing the Wrong Business Structure for Your Home Care or Hospice Agency
The way your agency is structured (LLC, S-Corp, sole proprietorship) has a direct impact on how much you pay in taxes. And many agency owners don’t realize how much their structure is affecting their tax bill.
The most common issue we see: Agency owners who would benefit from S-Corp election but are still operating as a standard LLC or sole proprietorship.
Why does this matter? Well, as a sole proprietor or single-member LLC, you pay self-employment tax (Social Security and Medicare) on your entire net income. That's 15.3% right off the top.
With an S-Corp election, you pay yourself a reasonable salary (which is subject to payroll taxes), and you take the remaining profits as distributions (which are not subject to self-employment tax). For profitable agencies, this can mean thousands of dollars in annual tax savings.
But S-Corp status comes with requirements. You must pay yourself a reasonable salary, and the IRS scrutinizes S-Corp owners who pay themselves too little to avoid payroll taxes. You also have additional payroll and compliance obligations.
The right structure depends on your agency’s size, profitability, and long-term goals. There’s no one-size-fits-all answer. What works for a startup agency may not be the best option once you're established. If you haven't reviewed your entity structure recently, it's worth a conversation with your accountant.
That’s why it’s important to revisit your structure regularly as your agency grows.
Your business structure directly impacts how much you pay in taxes every year.
Mistake #5: Missing Retirement Plan Opportunities That Reduce Taxes
Many home care agency owners assume retirement plans are complicated, expensive, and only for big companies. That assumption often leads to missed opportunities year after year.
Contributing to a retirement plan is one of the most effective ways to reduce your taxable income.
Here are a few options commonly used by agency owners:
- SEP-IRA: Simple to set up, allows substantial contributions, and you can fund it up until your tax filing deadline.
- SIMPLE IRA: Good for agencies with employees, requires employer matching but has lower contribution limits.
- Solo 401(k): If you have no employees (other than a spouse), this offers the highest contribution limits.
- Traditional 401(k): More complex to administer, but it offers flexibility and higher limits for larger agencies.
Compare these options side-by-side to see which fits your agency best.
Beyond the tax benefits, offering retirement plans helps with employee retention, which matters in an industry with notoriously high turnover. Caregivers who feel invested in their future are more likely to stay.
These benefits go beyond taxes. They also strengthen your team.
The real issue is going without a plan and missing out on legitimate tax savings year after year. Ignoring retirement plans means missing one of the most effective ways to reduce your tax burden.
Why Working with a Home Care-Focused Tax Professional Makes a Difference
Here's a bonus mistake that underlies many of the others: Working with an accountant who doesn't understand the home care industry.
This is often the root cause behind many of the issues we’ve already covered.
A generalist tax preparer may not know to ask about worker classification issues. They may not understand how Medicare and Medicaid reimbursements work. They may miss deductions that are obvious to someone who knows the industry.
They also may not flag sales tax obligations you didn't know you had. Some home care agency owners assume they’re tax-exempt like hospitals, but that’s not always the case. In some states, certain transactions, like telehealth delivered across state lines, medical equipment rentals, or sales of durable medical equipment and related supplies, can trigger sales or use tax, depending on how your state classifies those items. Because these rules vary widely by state and are changing quickly, this is an area where you want guidance from a tax professional who understands multistate healthcare sales-tax rules.
The difference shows up in both what gets caught and what gets missed.
When your accountant understands home care and hospice, they ask better questions, catch more issues, and provide advice that actually fits your situation. They know what auditors look for, they understand cost reports, and they discover problems early.
Working with an accountant who understands home care leads to better decisions and fewer costly mistakes.
Building a Smarter Tax Strategy for Your Home Care or Hospice Agency
Tax mistakes in home care and hospice can be frustrating and expensive. And more often than not, they're avoidable.
Building a smarter tax strategy starts with understanding where things commonly go wrong. When you understand the most common issues, you can take steps to prevent them.
Small changes like better tracking, proactive planning, and the right guidance, can make a significant difference in how much you pay and how confident you feel about your financial position.
If you want to understand how tax strategy fits into the broader financial picture of your agency, explore our Home Care & Hospice Industry page for additional insights tailored to your organization.
At Patrick Accounting, we work with agencies every day to avoid these pitfalls and build tax strategies that actually work. If you’re ready to reduce risk, capture more savings, and approach tax season with confidence, we'd love to have a conversation about your current tax strategy and where it can improve.
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