Locum tenens work offers exciting advantages for your medical career—your taxes just may be a little more complicated than a standard employee. Because most locum tenens work is based on an independent contractor model, a key part of managing your career is accurate and diligent recordkeeping.
Turn the following tips into habits to avoid surprises at tax time—and to ensure you take advantage of all tax deductions you’re entitled to.
Pay Yourself Last
Forgetting to set aside money for taxes could eat into money you have budgeted for other items. A good rule of thumb for 1099 employees is to pay taxes, debts and bills before paying yourself. That includes setting aside 40% of your earnings for federal, state and self-employment taxes. It’s also smart to set money aside for time between jobs to fill the gap in income, and to put a fixed amount into savings each month for emergencies.
Estimate Quarterly Payments
Submit quarterly estimates to prevent underpayment penalties come tax time. You can use last year’s annual tax return to calculate what you will owe. If it’s your first year as an independent contractor, you will need to estimate the amount of income you expect to earn during the year.
Make the deduction process smooth each year by keeping records and receipts for the following business-related items:
- CME expenses
- Licensing fees
- Board exam fees
- Office equipment and supplies
- Medical equipment
Adding expense tracking to your routine can help make sure you don’t miss any potential tax deductions.
Keep Records of All Large Purchases
It’s helpful for 1099 employees to keep accurate and detailed records of any large purchases, such as real estate, inheritance or even purchase of business. Remember to also report earnings from savings accounts and investments.
Reduce Your Taxable Income
A great way to reduce your taxable income is to contribute to retirement or health savings accounts (HSAs). Contributions to HSAs are tax-deductible, and you never lose your money if you don’t use it—it can be withdrawn tax-free to pay for healthcare expenses, and all money left over at the end of the year belongs to you.
Consult a Tax Professional
Transitioning from full-time employment to locum tenens independent contractor work requires some adjustment. We suggest working with a tax professional, especially through your first years as a locum tenens provider.
BONUS Tip: Consider Working Where There’s No State Income Tax
If a change is in your future, consider checking out a locum tenens assignment in one of the seven states that do not have state income tax:
- South Dakota
New Hampshire and Tennessee are also great options, as they withhold less tax than normal. (Hint: VISTA provides placements in all 50 states.)
Getting comfortable managing your own healthcare plan, taxes, expenses and income as a locum tenens provider will take some time. However, there are plenty of rewards for making the shift. Contact VISTA today or visit our job board to see where your next locum tenens assignment might take you.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before making any business decisions or engaging in any transaction.