It’s once again tax season, which means it’s once again time to compile receipts, take inventory of deductions, and calculate your annual income tax bill (or refund, hopefully). For permanent staff, the process is fairly straightforward. Locum tenens professionals, on the other hand, are independent contractors, and that status comes with a few different rules and regulations.
For example, independent contractors are required to pay state taxes to their home states as well as to each state in which they accepted locum tenens opportunities during the calendar year. (However, a state tax credit for the non-resident state tax liability is normally available to reduce the home state tax, which should fully or in part eliminate any double state taxation.)
Although filing in this category may appear more involved, you could qualify for some significant tax benefits, too. Here, we break down the top tax advantages associated with the locum tenens career alternative.
Expanded list of expenses
Independent contractors must complete the IRS Form 1040 Schedule C, which allows filers to claim more expenses as deductions. Not sure what meets the definition of a locum tenens expense? Simply put, it’s any cost incurred while en route or on assignment that is not prepaid or reimbursed by a staffing agency or contracting facility. This can include:
- Travel costs
- Work tools
- Home office expenses
- Continuing education
Locum tenens professionals may not, however, write off fees attributable to personal, family, or general living expenditures when not on assignment.
The IRS standard rate for out-of-pocket per meal cost or incidental per diem for contracts requiring overnight stays is $46. There’s also a CONUS meal and incidental rate that varies depending on location. To find out the most current rates, log onto www.gsa.gov.
Write off transportation fees
If you drove to a locum tenens contract location in your own vehicle and used personal finances to fill up the tank, then you are allowed to claim travel expenses if you are not reimbursed by either the staffing agency or facility. This deduction also would include daily commutes to and from work while on assignment.
Generally speaking, taxpayers can claim 56 cents per mile plus toll and parking charges when using a private vehicle. Another option is to submit the actual expenses, including a pro-rata portion of depreciation, gas, maintenance, and insurance. Check with a tax expert to see which option benefits you most.
Submit health insurance premiums
The independent contractor status enables locum tenens providers to apply for a deduction from their adjusted gross income for 100 percent of paid health insurance premiums.
Contribute to retirement savings
Independent contractors can deposit income into self-employment retirement plans, such as an SEP or Keogh Plan, and still reap tax perks. Individuals are allowed to set aside up to $52,000 or 25 percent of their annual net income, whichever is the lesser amount. Also, ask a tax specialist if you qualify for either a traditional or Roth IRA.
Deduct home office expenses
There’s an opportunity to deduct a home office if it’s a dedicated space where you attend to the administrative aspects of locum tenens. Chances are you could claim depreciation, utilities, and insurance associated with an office in a permanent residence.
Here are a few final tax tips to take into consideration.
- Independent contractors may be able to deduct a portion of the federal self-employment tax they are required to pay.
- Paying estimated quarterly state and federal taxes will help distribute the financial responsibility throughout the year instead of facing it all at once come April 15.
Whenever dealing with state or federal tax issues, consult with a professional tax advisor. Tax information contained here is not intended to be used, and cannot be used, by any person as a basis for avoiding tax penalties that may be imposed by the IRS or any state.