There is a lot to love about being a locum tenens physician. On the other hand, there are also some administrative duties that come with locum work that may not be so enjoyable. Handling your taxes is one of them, but taxation should not prevent physicians from pursuing the locum lifestyle.
The key to handling taxes is to remember that locum tenens work is classified as self-employment. Even though physicians may work through locum agencies, they do so as contractors ultimately responsible for meeting tax obligations.
Here are four helpful tax strategies every locum tenens physician can employ:
1. Maintain Meticulous Expense Records
Locums are eligible to deduct all kinds of expenses related to their activities as independent contractors. One example would be travel expenses not reimbursed by a staffing agency. Housing, meals, and even professional fees can be written off as cost of doing business. However, claiming all the right deductions without getting audited requires keeping meticulous expense records.
Physicians should save all receipts and invoices. If not thoroughly detailed, physicians should write in any additional details or attach other forms of documentation.
2. Maintain Meticulous Income Records
Hand-in-hand with expense records are income records. Every penny must be accounted for to avoid trouble with the IRS. Records include 1099 forms that should be issued by staffing agencies and/or employers depending on a physician’s particular arrangements. The IRS will be looking for copies of 1099s in the spring.
3. Schedule Tax Payments
As self-employed contractors, locum physicians are required to make quarterly income tax payments to the IRS. Some states require them as well. The best course of action is to budget for those payments at the start of every year. During the first year, it is enough to simply estimate what might be earned and then make four quarterly payments accordingly. Beginning the second year, avoiding penalties for underpayment requires physicians to pay at least what they owed in the previous tax year.
4. Consider Retirement Options
Lastly, locum tenens physicians should be saving for retirement just as if they were employed. How that is accomplished depends on the retirement goals of each physician. Know this much: different means of saving for retirement have different tax implications.
For example, if a physician were to begin contributing to a standard IRA, all the money contributed to that account would be pretax income. In other words, it would not be taxed in the year it was earned. All withdrawals from the account would be taxed as income later on. Contributing to a Roth IRA works just the opposite. The income that goes to contributions is taxed in the year it is earned; withdrawals from the IRA are not taxed down the road.
Consider Hiring an Accountant
If these four helpful tax strategies are not enough to set the locum physician’s mind at ease, employing the services of an accountant is the next best option. Physicians should know that even with an accountant’s assistance, meticulous records are necessary.
Locum tenens physicians are self-employed contractors. As such, they are responsible for reporting and paying all their taxes. If you are locum, how do you handle your taxes? Whatever you do, make sure that you are above board every step of the way.
Disclaimer: Tiva Healthcare does not provide tax or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax or accounting advice. Please consult your own tax and accounting advisors.
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