Nicholas Kusnezov, MD, shares his tips for creating a financial plan as an independent contractor working locum tenens.
Locum tenens can be tremendously lucrative, either as a stand-alone practice or as a supplement to your primary practice. As a result, it is paramount to have a solid financial strategy in place to intelligently manage your finances. Depending on where you are in your life and career, you should put thought into developing a tailored financial plan as early as possible.
How much should you allocate and where?
Generally, this involves deciding what portion of your income you want to allocate toward investments, retirement, and personal expenses. For me, with two young daughters, as you can imagine, a large portion of my income goes toward the latter at this point in my career. Additionally, while there may be tax advantages to locking your money up in certain types of accounts, you want to ensure that you maintain an adequate amount of liquidity to provide for planned future and especially unforeseen expenses.
How do you handle taxes?
As an extremely busy surgeon, the last thing that I want to consume my spare time with is the complexities of personal and business tax law.
While you may have completed your personal taxes in the past (as I have), this process can become increasingly complicated when you are working for multiple locum companies across the country. Tax law changes constantly, and it is easy to overlook the many nuances when personally doing your taxes.
Time is money, and in order to maximize efficiency and your tax returns, I would strongly recommend hiring a personal accountant. Especially when you have not just your own personal taxes but that of a limited liability corporation (LLC) to file, seasoned accountants save you a tremendous amount of time and money. To facilitate accurate tax reporting, I would additionally suggest keeping a spreadsheet of each of the different sources of income that both you and potentially your LLC accrue over the course of the year.
Do you have an LLC or other corporation?
After doing locums for a little over a year following residency, on the advice of a colleague of mine, I bit the bullet and established a professional LLC. I can say after another two years that I wish I had set one up sooner.
The LLC offers numerous tax advantages, even more so when working as an independent contractor. Having an LLC provides you with the opportunity to write off the numerous business-related expenses that you will accrue.
I would recommend keeping a meticulous record of your business-related expenses (travel, office expenses, licenses, and other professional fees). Additionally, as I did, I would recommend opening a separate business account and with a designated business card, so that you do not have to tease apart your personal and business expenses come tax time.
Although physicians aren’t expected to be financial experts, it is important to have a sound financial plan. This is especially true for locum tenens physicians. As an independent contractor, you will have more responsibilities for your own taxes, benefits, and retirement planning than you would as an employed physician. But the rewards — both financial and professional — make it well worth the effort!