Tax season can be a stressful time if you are not adequately prepared. While the IRS has moved the filing deadline to Monday, May 17, 2021, it’s always a good idea to start well in advance – especially if you work locum tenens.
As a locum tenens provider, you are an independent contractor, which means you have the flexibility to manage and create your schedule while collecting higher compensation rates than employed staff. Locum tenens empowers you to make more informed decisions about your career path based on factors most important to you. You have the freedom to work in different healthcare environments across various state lines, ultimately furthering your expertise and skillsets. During your travels, it is important to keep documentation and stay organized, so your tax season is a breeze.
Filing your taxes can be overwhelming if you do not correctly prepare – here are some pro-tips to make your Tax Day go seamlessly!
- Find Your Qualified Tax Preparer
First, it is crucial to work with a financial advisor and tax preparer that will organize your documentation and build a financial plan to ensure your tax requirements are fulfilled. Tax regulations are complex, and liabilities vary across state lines. Working with a tax preparer can relieve a lot of the stress and worry. We suggest you partner with a preparer who has expertise in locum tenens tax plans and is well-informed with the laws in the specific states you practice.
W-2 Vs. 1099
W-2s are issued to individuals that are employed by a company. Paychecks are produced through their employer’s payroll, and tax payments are automatically withheld from compensation.
A 1099 worker is also known as an independent contractor. The IRS looks at several factors when determining if an individual is a 1099. In most cases, if you are providing locum tenens services, you are classified as an independent contractor.
If you work locum assignments in addition to a full-time employed position, you will receive both a 1099 and a W-2. To file your taxes, you will need to gather your 1099s (you may have several of them) and any W-2s. All of the companies you worked for are required to send you documentation of work by January 31. If you do not receive W-2s or 1099s from every company you worked for, make sure to follow up so you can properly file and pay your taxes.
- Embrace Quarterly Estimates
When you work on the payroll of your employer, they estimate and withhold taxes and social security. As locum tenens, you’re technically your own employer; therefore, you are responsible for estimating your taxes and making tax payments quarterly: April, June, September, and January (for the 4th quarter). Not paying these each quarter may result in penalties if taxes owed for the income exceeds $1,000.00. Paying your taxes quarterly allows you to see how much you’re truly making.
- Don’t Miss Work Expenses
As a locum tenens provider, you have different expenses than a W-2 employee. A common mistake independent contractors make is not tracking their expenses while traveling. We highly advise you to keep receipts for the following items to lower your bill on Tax Day significantly.
- And more
It’s important to note that your pay should be quite a bit higher than someone employed on staff. That extra money should cover expenses, taxes, social security, and benefits packages that the employers aren’t paying for you. Always consider this when comparing pay rates for locum tenens assignments versus employed positions.
- Open a Separate Bank Account
Opening a separate bank account will streamline your income and expense process, making locum tenens payments easier to track. Ideally, your work-related expenses and income would be deducted and added from one account, separate from your other finances. You can also set up retirement, healthcare, etc., deductions through this account. After your required expenses have been sent, the additional money would then be transferred into your personal account.
- Choosing Your Business Structure
The basic options include sole proprietorship, partnership, C corporation, S corporation, and limited liability company (LLC). Whatever entity you select, always treat it as a real business and keep your personal finances separate. If you are unsure what business structure is best for you, we advise you to discuss it with your financial advisor.
- Favorite Your Resources
The IRS, Medscape, Whitecoat, etc., offer reliable information on navigating your taxes fittingly and organizing your financials as a locum tenens provider. It’s good to know where to find accurate and up-to-date information on the tax process and best practices.
We hope these 7 tips make your tax day a breeze. If you are still unsure of the best path for you, we encourage you to review your options with an accountant or lawyer.