It’s tax time! Here are some tax tips for locums to help you enjoy a clear, easy, organized tax season.
If you’re a provider who loves the locum lifestyle, you know the flexibility, freedom, and reward of working for yourself. With the autonomy of being an independent contractor, however, comes the responsibility and tedium of tax time – especially since you don’t have an employer withholding taxes on your behalf. Preparing your own taxes can feel intimidating or daunting. It can seem like you’re slogging through mud, trying to sort out all of the details. To help you find some clarity and assist in making your locum tenens tax preparation as organized and streamlined as possible, we’ve assembled these locum tenens tax tips.*
1. Hire a tax professional.
Preparing your own taxes can be time-consuming and risky – especially considering last year’s changes to the federal tax law. As a physician or advanced practitioner who takes on locum tenens assignments, you may have a more complicated tax scenario that is best handled by a trained tax pro. You will likely be required to file Form 1040, Schedule C, Schedule SE, and/or other forms depending on your situation. If you work in different states during the year, your tax advisor can help you determine whether you need to file in each of the states. Your tax advisor can also help you optimize your tax savings and streamline your processes for keeping records and for paying estimated taxes.
2. Take note of changes to the tax law
Enacted in 2018, The Tax Cuts and Jobs Act (TCJA), included extensive changes that will likely affect you, so it makes sense to dig deeper with your tax advisor into details about the pass-through income deduction, adjusted tax brackets, and changes to exemptions. To start, read about this year’s IRS annual inflation adjustments which cover more than 60 tax provisions, including the tax rate schedules and other tax changes. These adjustments affect your 2019 taxes (which should be filed by April 15, 2020).
3. Pay attention to deductions.
When you meet with your tax advisor, ask to go over a checklist of possible expenses and deductions. There may be business expenses or deductions you have not considered such as parking and tolls, journal subscriptions, equipment and supplies, cell phone and internet, license and board exam fees, or even your scrubs, stethoscope or lab coat! Consider any unreimbursed out-of-pocket expenses and ask your tax advisor whether these costs qualify. And don’t forget, your health insurance premiums are also deductible. Research whether you could benefit from a high-deductible plan with a Health Savings Account – another smart way to save.
4. Keep up with receipts and records
Once you’ve thoroughly analyzed your work-related expenses, your tax professional can advise you as to which specific records and receipts you should retain. The process is much easier now since nearly all records and bills are handled electronically, but do retain paper receipts when possible (a best practice is to photograph, scan, or copy them as receipts can quickly fade). In addition to gathering relevant receipts and bills, you will also need all pertinent tax forms – including your Form 1099-MISC.
5. Follow up if you don’t receive your Form 1099-MISC or other tax forms.
Form 1099-MISC is used by companies to report nonemployee compensation (including payments to independent contractors). You should receive a Form 1099-MISC from any entity that pays you $600 or more in a year. In the case of physicians and APs who work locum tenens, you should receive this form from your locum tenens staffing agency. The IRS requires companies to file and mail all 1099s to contractors by January 31. If you have not received your 1099s by shortly after that date, be sure to contact your locum tenens agency.
6. Pay your quarterly estimated taxes.
Because you will not have a company withholding taxes for you (unless you happen to be an employee in addition to working as an independent contractor and elect to have the IRS withhold them), you will need to pay them yourself. The IRS has set up a system for you to pay your estimated taxes on a quarterly basis either online or via mail. Your tax professional can help you determine how much you should pay, and you can adjust this amount quarterly if needed based on your earnings. That way, you won’t under or overshoot the mark at tax time. It may be helpful to set up a separate savings account so you can set aside money for taxes upon each payment you receive.
7. Save for retirement.
One way to shelter income, deduct contributions or defer taxes is to save money through retirement plans like the Solo 401(k), SEP-IRA, SIMPLE IRA, Traditional IRA, or Roth IRA. James M. Dahle, MD, FACEP, covers How Independent Contractors Can Set Up Retirement Accounts in American College of Emergency Physicians ACEP Now. The article proves a helpful reminder of the importance of bolstering your retirement accounts.
8. Congratulate yourself on a job well done.
Tax preparation forces you to go through your documentation of income and expenditures with a fine-toothed comb. Make it an opportunity to reflect on the past year and note how you can optimize your deductions and expenses, build your savings, streamline your spending, and improve your record-keeping moving forward. Take a moment to reflect on your income, and congratulate yourself on what you’ve earned and accomplished as a locums professional.
Although you’ll have to put in a bit of extra time and effort on paying taxes as an independent contractor, at Cross Country Locums we’re convinced locum tenens is worth it! You just can’t beat the flexibility and freedom you’ll find when you take on a rewarding locum tenens assignment. And with a little foresight and organization, you’ll be well on your way to a stress-free tax season.
* This communication is for informational purposes only. Cross Country Locums does not provide tax, legal, or accounting advice. Tax law is subject to continual change. Consult a financial professional for tax advice.