Tax Tips for Locum Tenens
“The hardest thing in the world to understand is income taxes.” – Albert Einstein
If you’re a new locum tenens provider, tax time may prove a bit more complicated this time around. There’s a learning curve if you’ve never been self-employed before. But after the first year, things will run smoothly, especially with the help of a trusted tax advisor. These 2023 tax tips for locum tenens providers will help you along.
Note: We’ve focused primarily on locum tenens providers who qualify as independent contractors. To ensure you’re qualified correctly, consult an accountant and refer to the IRS website.
Locum Tenens Tax Tips
1. Hire an accountant.
It may be tempting to do your taxes yourself. After all, you know you’re intelligent and entirely capable, you’ve always filed your taxes, and you’re sure you’ll save money filing on your own. Resist the urge. Hire an accountant. After all, even Einstein acknowledged how complicated taxes are. An accountant can advise you on issues such as whether you’re best to structure yourself as a sole proprietorship, limited liability corporation, or S-Corp. An accountant can navigate the complex and ever-evolving federal and state tax codes. They can sit across from the table from an IRS agent on your behalf in case you’re ever audited. And an accountant can save you money since they know the many tax advantages you can take as a locum tenens provider. Plus, it just makes sense to outsource tax prep, since your energy is best spent on practicing medicine or enjoying your leisure time.
2. Maintain records of your payments throughout the year and report all income to the IRS.
Keep meticulous records of your earnings. Since you are an independent contractor, rather than receiving a W-2 at the end of the year (like an employee), you’ll receive 1099s from companies you contract with during the year. Once you’ve received the 1099s, confirm they match your records and report this income to the IRS. Be sure to reach out to payors to correct any mistakes. Companies must also send their 1099s to the IRS, so you’ll hear from the IRS if the numbers don’t match precisely.
3. Keep track of and deduct business-related expenses.
Hold on to receipts and log all of your practice-related expenses throughout the year. Because you’re self-employed, you’re entitled to deduct certain business-related expenses. Ensure you’re taking advantage of all possible deductions, but also check with your accounting to ensure you’re not taking deductions you’re not legally entitled to. Follow the law to a T to help avoid red flags that may trigger an audit! Scroll down for a list of possible practice-related deductions.
4. Pay your quarterly estimated taxes.
Employers generally have to withhold and pay taxes for their W-2 employees. But if you’re a self-employed contractor, since you’re your own boss, you pay these taxes yourself. You’ll be required to pay quarterly estimated taxes by four deadlines throughout the year and then file and settle up at tax time. Your responsibilities will include income tax, self-employment tax (Social Security and Medicare tax), and alternative minimum tax. Your accountant can help you figure out your estimate for the upcoming year when you file your taxes for the prior year. Your estimated taxes are based on your previous year’s income; however, you can adjust as you go if your earnings were significantly higher or lower. Visit IRS FAQs for quarterly estimated tax payment due dates. To avoid quarterly tax payments sneaking up on you, create a separate account and deposit a portion of every payment you receive into that account.
5. Maximize your tax savings with retirement and health savings accounts.
Consider setting up a traditional IRA, Roth IRA, Simplified Employee Pension (SEP) IRA and/or Health Savings Account (HSA). These accounts can give you tax advantages. A traditional IRA allows you to put pre-tax dollars into a retirement account that grows tax-deferred until you withdraw money during retirement. A Roth IRA allows you to put after-tax dollars into a retirement account that will not be taxes when you withdraw the money for retirement. You may be eligible for a SEP IRA, which may allow you to build even more tax-deferred savings for retirement. If you have a High Deductible Health Plan (HDHP), you may be eligible for Health Savings Account, which lets individuals set aside pre-tax dollars to pay for qualified medical expenses.
6. When you file federal taxes, be sure to file any relevant state taxes.
If you have worked in multiple states, you’ll likely have to file in your state of residence and any states you’ve worked in. This is another area an accountant will really come in handy. Look for an accountant who has experience with independent contractors or locums providers. Also find someone who understands tax laws in the states you work in.
About Locum Tenens Independent Contractors
The IRS defines independent contractors as:
- “People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
If you are an independent contractor, you are considered self-employed and must pay self-employment tax (IRS – Self-Employment Tax).
Locum Tax Deductions
Here is a list of possible tax deductions to research for your situation. Be sure to consult with your accountant to confirm each deduction is allowable.
- Health and dental insurance premiums for yourself, your spouse and any dependents
- Fees for medical licenses, continuing medical education, journal subscriptions, professional organization memberships, etc.
- CPA and legal fees
- Equipment and clothing that you purchase yourself and use only for your practice, including scrubs, lab coats, and stethoscope
- The portion of the costs of your laptop, cell phone, iPad you use for practice
- Home office supplies such as a printer, paper, toner, etc.
- Retirement account contributions
- Home office expenses, such as a portion of your rent, mortgage payment, electricity, etc. ONLY if you use this area/resources on a regular basis (in certain cases, ask your accountant)
- Out-of-pocket travel, accommodations, meals and mileage, depending on your situation and not covered by your agency
While navigating taxes as a locum tenens provider can be tricky at first, one you’ve set up a system, it will be smooth sailing. The independence and the many other perks of the locums life make it well worth the effort!