As we enter tax season, it’s important for locum tenens clinicians to plan accordingly to avoid surprises. When working locum tenens, you are considered independent contractors, and there a few things to know when filing your taxes.
What is an independent contractor?
An independent contractor is someone who is considered self-employed. This means they will receive a Form 1099-MISC and are subject to self-employment tax. Additionally, independent contractors are paid without taxes being held. They may be required to pay quarterly estimated taxes or taxes on the amounts paid throughout the year.
As an independent contractor, you have distinct advantages and challenges when preparing your taxes. Here are a few tax planning tips to help navigate the upcoming tax season:
Compile all 1099-MISC forms
If you earned more than $600 working for an employer as an independent contractor during 2018, you should receive a Form 1099-MISC. As a locum tenens clinician, chances are you will be receiving more than one. Compiling all of them together will assist in getting prepared for filing your tax return. You should have a list of all the employers you worked for that paid over $600 so you can check them off as the forms arrive. Forms should arrive by early February. Once you receive them, check them for accuracy to ensure you enter the right amounts on your return.
Maximize your deductions
One of the great things about being an independent contractor is that many of the expenses you incur are tax deductible. This means costs associated with your temporary assignment like:
Equipment and supplies
As an independent contractor, you may also be able to deduct healthcare premiums, 50% of the Medicare and Social Security tax you pay and other related expenses. It is also important to keep all expense receipts to make sure you can justify these deductions.
Pay quarterly taxes
Paying your taxes quarterly can help because it takes the burden off having a large tax bill at the end of the year. Switching to a quarterly schedule is advantageous, especially if you pay more than $1,000 per year. Failing to pay your estimated taxes on time can result in penalties if you end up owing on your return.
Save for taxes
Saving for taxes is important, as it provides a “cushion” in the event you have to pay more than expected and helps keep your financials in order. By budgeting and planning ahead, you will have peace of mind and won’t have to use money you have budgeted for other expenses.
One of the best things you can do to save for taxes is to open a separate savings account. As a rule of thumb, you can set aside 40% of your earnings for taxes. A good practice is to estimate your quarterly payments based on last year’s annual tax return, or estimate the total amount of income you expect to earn throughout the year.
As independent contractors, tax season can be a stressful time for locum tenens clinicians. With proper planning and saving, you can be organized, save money and create a simplistic process now and in the future.
Disclaimer: VISTA Staffing does not provide tax, legal or accounting advice. This article 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 engaging in any transaction.