We recently partnered with Alexis Gallati of Cerebral Tax Advisors for a webinar focused on how locum tenens physicians can best optimize their finances and taxes. If you’ve ever wondered how to manage your finances as a locum provider, our 2025 tax webinar has you covered. We tackled the most common questions about taxes, deductions, retirement, and more. View the full webinar below.
Here are the key highlights and where to find the answers in the webinar recording:
- What type of business entity should I set up?
Answered at 3:04 - What can I deduct?
Find out at 12:33 - How should I keep records?
Details at 20:09 - What retirement account should I use, and how much should I set aside?
Covered at 25:28 - Any other ways to lower my taxes?
Tips shared at 30:59
Whether you’re just starting out in locums or looking for ways to optimize your financial strategy, this webinar is a must-watch. Catch the full recording and get the insights you need to make 2025 your most successful year yet!
To learn more about working locum tenens, view today’s job opportunities or give us a call at 954.343.3050.
Webinar Transcript:
Rachel Jepperson: Well, thank you for joining us today to learn how to keep more of what you earn as a locum tenens physician. I’m Rachel Jepperson with Weatherby Healthcare, a locum tenens agency that places physicians in positions across the country, and I’m very excited to introduce our presentation today with Alexis Gallati, owner and lead tax strategist of Cerebral Tax Advisors, the founder of Cerebral Wealth Academy, and the author of the book Advanced Tax Planning for Medical Professionals. As both the daughter and spouse of physicians, she brings a personal perspective to this topic. I will let her take it from here.
Alexis Gallati: Thank you, everybody, for being here, and I’m excited to talk to you about what it means to keep more of what you earn as a locum tenens physician. As Rachel mentioned, I have lots of experience when it comes to medical professionals. That’s what I specialize in, not only because I grew up in a physician household, but because I also am married to a physician. My husband and I have, you know, gone through the same sort of financial situations as most of Cerebral’s clients, and know that you guys don’t get that education during medical school or residency, and this really will allow you to get an idea of where to start and go from there. So again, yes, my name is Alexis, and I have 20 plus years in the tax and accounting industry. I’m an enrolled agent. I also am a certified tax strategist. I have my master’s in business administration and my Master of Science in taxation.
And you know, we really focus on medical professionals, that white glove communication, and making sure that you are again keeping more of what you earn.
What type of business entity should I set up?
So what are the most common questions that I get as a tax professional, especially with someone new starting out in the locum tenens community? Well, most of the time it’s what entities should I be, and how much should I be putting aside for taxes? What can I deduct? How long should I keep my records for, and which retirement should I have? And also, too, you know, once I’ve done all those things, what else can I be doing to lower my taxes? So these are the topics that we’re going to go through today. I want to make sure that you know exactly. You know your options in terms of your entity, what you can deduct, what your retirement should look like, and how you can set yourself up for success.
So let’s start with what entity should I be? I mean, that’s usually where you’re going to start thinking about it. You’re starting to make money. And you know there are several different options that you can take when it comes to your entity selection, and those are usually going to have to be set up very first thing as well. One of the things that your whoever you’re going to be paying with, like Weatherby paying you, we’ll go and ask you, where do you want this money to go? Do you want it to go into your personal bank account or into an entity? So what are your options? You can either be a sole proprietorship or single-member LLC. You can be a partnership if you’re going to have more than one person, an S-corporation, or a C-corporation.
So let’s discuss each of those options. Now, when you’re starting out, you’re able to just be paid personally in your social security number as opposed to setting up an employer identification number or EIN and having your entity paid. When you’re a sole proprietorship, 100% of your profit is subject to self-employment. Tax and self-employment tax are social security and Medicare and you’re able to deduct all of your normal office expenses. Business expenses — you know, physician related expenses that are again related to that job that you’re doing now. Many of you might be thinking, “Well, hey, what about an LLC.?” and it’s important to understand that an LLC or a limited liability company is a state-formed entity that can actually be taxed several different ways. It can be taxed as a sole proprietorship or partnership, or an S-Corporation or C-Corporation.
So, the LLC itself does not define how you’re actually being taxed. It’s the election that you make, it will tell you how you are being taxed, or the number of partners that you have will define how much you’re being taxed. So the sole proprietorship is just the default if you’re an LLC by yourself, and you don’t elect to be an S-Corporation or C-corporation, then you’re just at default that sole proprietorship and 100% of your profit is subject to self-employment tax. Now, if you decide, “Hey, I’m going to do this with a colleague, or maybe a spouse, and we’re going to actually form a partnership,” you have multiple members. Then if you don’t, if you’re just an LLC, then you’re a multi-member LLC, and then you’re automatically a partnership. And again, a hundred percent of your profit is subject to that self-employment tax.
Most physicians will think, okay. I’ve heard about S Corporations. How can I be an S Corporation? You have to go and decide if that is the right fit for you. Now, if you are an LLC and you do an S Election by doing form 2553, then your income is going to be allocated differently than if you were a sole proprietorship. So with the S corporation A, instead of a 100% of your profits being subject to self-employment tax, your earnings are allocated between W-2 wages and distributions or profit, and so the profit is not subject to self-employment tax; only the W-2 portion is. And so that’s where you get a bit of a tax savings.
And it’s really important to realize that you need to set up a reasonable compensation for yourself in order to keep yourself safe from IRS scrutiny. You can’t just give yourself a really, really low salary. You have to actually pay yourself as if you had hired yourself off the street for that same job. So making sure that you are paying yourself an appropriate amount, and that that reasonable wage is giving you a a proper base for doing retirement calculations, because just your W-2 compensation is part of the calculation for your retirement calculation. So if you are like, “Hey, I’m only going to pay myself $10,000 for the year,” then you’re not going to be able to give yourself a much bigger retirement contribution, because it’s limited to that $10,000, basically. So it’s very much a dance, or an art to deciding how much should I pay myself to keep myself safe from IRS scrutiny as well as how much do I want to pay myself to put enough away into retirement as well?
Now, it’s important to note that just like with a partnership and an S-Corporation, even the C-Corporation, that there is a separate tax filing where, with a sole proprietorship all that information for your business is reported on your personal tax return. An S-corporation and a partnership are considered pass-through entities, which basically means that the income is being reported on the business tax return almost like an informational return. And then that income is passed through to your personal return, where you actually go to pay tax on it. So you’ll want to make sure to understand how your entity is being taxed, and where that tax is actually happening, and also, too, in some states for S-corporations, the S-Corporation itself is subject to a state tax. That’s very much the case in Tennessee where I’m located. There are 6% to a 6.5% excise franchise and excise tax. And so that is going to essentially wipe out any Federal tax savings by having that S-corporation. So it’s really important to understand not only how your entity is being taxed on the Federal level, but also the State level as well. So then, that way you can make sure that the S-Corporation is truly the best fit.
In Tennessee, for example, a lot of times staying taxed as a sole proprietorship is actually a better choice because of that franchise and excise tax at the state level. Now, C-corporations, they’re considered completely separate from your personal tax situation. They are taxed at the entity level. And right now, that’s at 21%. But it’s important to realize that, yes, you’ll be taking a salary through your C-Corporation but any profit that occurs will be taxed at 21% tax rate, which sounds great, especially for a lot of physicians who might be above that 21% bracket.But the thing is that in order to get that money out to take any distributions, or what it’s called for C-corporations, dividends, those dividends are then going to be taxed again at the 15 to 20% dividend tax on your personal tax return. So C-corps are notorious for that double taxation.
You’ll want to make sure that if that’s going to be the best fit for you, then you take into account if you’re trying to get any money out of your C-corporation above and beyond your salary, that you go and take that extra dividend tax into consideration, and a lot of times most firms, especially with C-corporations, will zero out their tax their profit every year to their salary. So then, that way, they’re not subject to 21% tax rate but are subject to their own tax rate.
So again, California is a state where you’re forced as a physician to be a corporation. To start with a professional corporation, a PC, California does not recognize PLLC as a professional limited liability companies. So you have to start out as that C-Corp. Unless you do an S election to become an S-Corp. And so most people will do that S-election to keep them compliant and have a better tax rate. So again, when it comes to entity selection, there are tons of different options. It really depends on where you live and how much you’re making to decide what you need to move forward with.
What can I deduct?
So let’s discuss what you can be deducting as a business owner. Of course you can be deducting all the normal business expenses. You need to go to Staples to buy office supplies, or you need to go and buy equipment for your position, then you’ll need to go and just deduct all those normal expenses. You have to start thinking like a business owner. What can I deduct? That’s personal that can run through the business and be a legitimate business deduction and some of the highlights, especially as a locum doc, you’re going to be traveling quite a bit. You want to make sure to take advantage of automobile expenses. You want to go and track all of your mileage, both personal and business, and then go and get a percentage. So like, let’s say, you drive 60% for business, then you can write off 60% of your vehicle expenses.
So it’s really important to make sure you’re keeping track. And you know, if you are like, I don’t want to keep receipts. (Which you, by the way, for all the things we’re about to discuss in terms of business deductions, you really have to make sure to be keeping receipts, and we’re going to talk a little bit more about that next slide.) But with the automobile expenses, you can decide whether to take actual expenses or to take the standard mileage deduction, which for 2024, is 67 cents. It goes down a little bit to 65.5 cents for 2025. And, by the way, it’s always important to kind of look during the year, the IRS will sometimes change that during the year, depending upon gas prices and other automobile expenses. So make sure you keep up to date on that. But you can go and keep track of both of those. What I recommend is you keep track of your business mileage, and you can compare between applying the business percentage to your automobile expenses and to the standard deduction and see which one is more.
I’m gonna skip down to office in the home. You want to be keeping track of all of your home expenses. Like your home utilities, your monthly security monitoring system, changing out your filters for your air conditioning, etc. All that maintenance, homeowners, insurance property taxes, mortgage interest, all of those items can be tracked. And then you take a percentage of your home. So let’s say you have a 10,000 square foot home, and a thousand is going towards your office space. A very big office. Then 10% of your home expenses can be applied to your home office, and you can deduct that 10% of your office or your home expenses. So it’s really important to just keep track of all of those things so then that way, you’re getting the most of your deductions. You’re again moving some personal expenses to being business deductions.
Now, another great travel expense that a lot of locum tenens docs aren’t aware of is the per diem standard rates and this is great for tracking your expenses in terms of hotel, meals, and incidentals. So incidentals are things like dry cleaning. Now the per diem rates are set by the government. If you go to gsa.gov, or you even just Google per diem rates into Google, then it’ll bring this up. The government has set a standard rate, and depending upon what city you’re in, how much you can deduct without having to actually keep track of your expenses for your lodging and your meals and incidentals. So I know with a lot of locum docs usually their lodging is covered, but meals might not be. And so if you go to New York City, and let’s say that for a day in New York City, the standard rate is $70 a day, but you only pay $30 for that day for your meals. Then you have an extra $40 of deductions that you can take without having to actually spend that money. So it’s really advantageous for you to keep track of where you’re going and make sure that you compare your actual expenses versus the standard per diem amount. So then that way you’re getting the most out of your deductions.
Another deduction that is very typical is your health insurance, I mean, for a lot of locum docs, you’re not going to get your health insurance covered. You have to go out on the market and purchase that yourself. You want to make sure that you are going and keeping track of those, and not necessarily running it through your business. But you do have to if you’re an S-Corporation. You do have to add those premiums that you’re paying to your salary, and then you get a deduction on your tax return.
Another wonderful, and probably one of my favorite tax strategies, is the Health Savings Account, the HSA. So if you have a health insurance plan that is a high deductible plan, according to the IRS, then you’re able to go and put money into your HSA. And that’s a triple tax advantage. So that money is going in tax-free, is growing tax-free, and then comes out tax-free when you use it for qualified medical expenses. And so myself and a lot of my clients will actually go and contribute the max every year, and then hold on to our receipts, pay our health and healthcare expenses out of pocket, and then we’ll allow that to grow because a lot of HSA accounts will allow you to grow the account quickly, like through investing it, basically. And so that grows, and in 30 years, when I actually want to go and get a hold of that money, I can go and submit my 30-year-old receipts in order to get use of that money then, and by that point it’s grown a lot more. Most likely you’re gonna have a lot of other health issues and so you can use that at that time.
A lot of other unreimbursed expenses that you might not be getting if you were doing W-2 are things like, if you need to buy equipment like laptops, or even subscriptions to certain periodicals or research. Your cell phone. Your licensing and board examinations, your CME, as well any of those expenses. All of those things can be deducted through your business. And so again, I really recommend you look at, What have I been paying for out of pocket and I’ve just always considered personal? And how can I have this be considered reasonable for being a business expense?
Now it is important to know, especially with the per diem, that for the meals and incidentals you make sure that you are not going to be staying in one place for more than a year. And that’s just because the IRS considers that temporary if it’s under a year, and it’s considered more permanent if it’s over a year. Then you won’t be able to get your meals and incidental tax strategy.
How should I keep records?
Now, when it comes to keeping records, I like to always stand on my soapbox for this. It’s super important that you treat your business like a business. You have to have a separate bank account for your business credit card account, bank account, etc, because the IRS does not like to see the commingling of personal and business funds. So having that separated out is super important to legitimize your business in in the eyes of the IRS, and you have to make sure to keep itemized receipts, because the IRS does not count credit card statements or bank statements as being a receipt, they need to actually see what you purchased, because if you go to Costco and buy $5,000 of something, they don’t know if that’s a new computer, or if it’s food, they need to actually see it. So they can technically deny the deduction if you don’t have the receipt, and it’s important to keep those receipts for a minimum of 3 years. The IRS has 3 years to audit a tax return from the filing date. So I usually recommend that you keep it for 7 years, maybe even 5 years. But it’s just because I’m also an accountant, and that’s for our own records. We like to keep things for at least 7 years.
Right now, since everything can be digital, especially when it comes to receipts, you, by all means, keep it digitally in a Google Drive or Dropbox, something like that. So then, that way you have it if the IRS were to ask for it.
Having an accountable plan set up is really important for any business. And these are, this is kind of a quirky thing that the IRS requires, especially for S-corporations and C-corporations because they you need to basically give your business permission to reimburse you for business expenses paid with personal funds. So let’s say you do go to Costco, and you buy a bunch of food. And you buy a new computer that. And you put that on your personal credit card. Then you need to submit that receipt for that $2,000 computer to your business through your accountable plan and make sure that it gets reported on your business return.
I highly recommend using technology to help you with that record keeping and keeping track of your personal expenses and mileage, etc. So I’m a big fan of QuickBooks online. That’s what we use at Cerebral, but even just using something like Excel to help you keep track of those income and expenses is, you know, going to be really helpful come tax time and for you to actually have a pulse of on what’s happening in your business financially. For personal use, I like Monarch Money, or Empower, etc, That really allows you to keep track of your personal expenses and investments when wanting to keep track of, like all of your home expenses, your automobile expenses. It just allows you to automate a lot of this process, and that way you are in good shape for tax time. It will save you a lot of headaches as well. Using Mile IQ, or even QuickBooks has a mileage tracking app to help automate the tracking systems. Just please use technology to your advantage. And there are lots of different options out there, but these are just a few that you see on screen, and so just in general, again, keeping track of everything is really important.
When it comes to receipts, keep track again. Even if it’s just as simple as keeping a folder tree where you have, you know, 2024, or 2025 receipts, and then subfolders for each of the categories. Just put them in there like, Hey, I just, you know, did some travel. There’s travel expenses, or I went to Staples for office supplies. Put it right into there. You want to keep track of all of your business meals as well, and write down the intent of business of that meal on the receipt before you forget. Take a picture of it, put it away. When it comes to saving receipts, 90% of a fight with the IRS is documentation. So it’s really important.
What retirement account should I use, and how much should I set aside?
Well, let’s get into something that’s a little bit more complicated. Let’s talk about retirement. I mean, this really is a low-hanging fruit when it comes to tax savings and wealth generation. And of course, when most people think, Hey, I’ll just set up a SEP IRA. Well, that’s great. SEP IRAs are okay. But actually, I hardly ever recommend them, and that’s mainly because they don’t allow you to do a tax-free backdoor Roth. And so we’ll get to backdoor Roth in a second. But they’re just better options, especially the 401(k), which will ill allow you to do a tax-free backdoor Roth.
Although SEPs are inexpensive, you also have to remember, too, that they only allow for employer contributions, which means that’s coming from the business, whereas the solo 401(k) allows for an employee deferral and an employer contribution. And so, if your income isn’t as high, if that W-2 isn’t as high within your business, then the solo 401(k) can actually allow you to put more away than the SEP IRA by itself.
Now for 2025, we’re looking at $70,000. That’s up from $69,000 max for the SEP IRA and the 401(k). And the$ 69,000 for 2024, the solo 401(k) as I mentioned, since it has both the employee deferral and the employer contribution, they allow for $23,500 employee deferral, and then approximately 25% of profits if you’re an S-corporation up to that $70,000 limit for 2025. Now 401(k)s do have a bit more administration involved. They are less inexpensive, but you have to do a form 5500. You have to report on a tax return to the IRS how much is in your retirement account, you know, because they’re nosy.
So another great option, though, is a defined benefit plan or defined pension plan that allows you to put even more away into retirement if you want to go above and beyond that $70,000. Now the SEP IRA and the solo 401(k) are defined contribution plans. And so that means that the IRS is defining how much you can put in each year, which is that again, that $23,500, or even that $70,000 max, where with a defined benefit plan, that is the IRS, defining how much you’re allowed to put away into that plan. So they’re defining the benefit. And right now it’s about $3.5 million by the time that you retire.
So let’s say you’re 40 years old, and you have a retirement age of 62. Well, then, you have 22 years to reach that $3.5 million. So you can understand where you’re allowed to put a lot more into a defined benefit plan because you have that shorter period of time to reach that dollar amount. And of course, if you’re older, let’s say that you’re 52, then you only have 12 years to get to that point now, and you can redefine that retirement age, of course. But these plans are a lot more expensive because you have to have an actuary involved. That’s a 3rd party administrator to not only do the annual calculations and the IRS compliance with doing that form 5500 but also, if you have employees, you have to make sure that you include those employees in any of these plans. It can get a little bit more expensive, but in my experience the cost benefit is very much on the side of having a retirement plan that you can be putting money away into. And so far these are all pre-tax contributions that I’ve been discussing, but for a solo 401(k) you can have a Roth option, and that does allow you to — if you guys have heard about Mega backdoor Roths, being able to do that as well now. But talking about the normal, everyday sort of backdoor Roth, this is really important, especially for locum docs, because you guys end up making too much money to actually do a direct Roth contribution. And so this strategy allows you to put your $70,000 a year max.
That was for 2024, and even for 2025 into your Roth IRA, by first putting it into a pre-tax IRA, and then allowing you to roll that over to the Roth IRA. Now, that’s going to be a tax-free conversion because you’re putting in post-tax dollars. However, if you do have any traditional IRs, SEP IRAs, or simple IRA accounts with balances at the end of the year, then you might be subject to pro rata rules, and that backdoor Roth conversion will be partially taxable. So, that’s really important to work with your tax advisor to make sure that you are set up to do a tax-free backdoor Roth, and that $70,000 isn’t being taxed twice.
Any other ways to lower my taxes?
Okay, well, let’s talk about some additional strategies and a lot of people talk to me about, hey? I have a spouse or I have children, and I’d really like to pay them money for working in my business. And this is a great strategy. The court tested age is 7 or older. Yes, you can hire them younger, but it’s more difficult to substantiate their salary, and this is really allowing you to shift income from your higher bracket down to their non-existent tax bracket. In 2024 you can pay them up to $14,600, and in 2025 up to $15,000 before they even have any taxable liability. You just have to make sure that if you know you have a a teenager, for example, that’s working at Baskin Robbins, that you account the money that they’re earning from there in that. You know, $15,000, for example, for 2025, and that follows the standard deduction. So you can kind of look that up yourself. But this is a really great way for you to not only save for their retirement but to also go and pay off some of their support.
And this can even be done for a parent. If you’re supporting a parent, and you have them work in the company. Now, a lot of people might want to hire their spouse, and this is great, if you want to put more away into retirement, have them put more in and put away for their retirement as well. That’s really the main reason for doing that with the spouse. If they’re not going to put money away into retirement, then you don’t want to pay those extra payroll taxes. But also, too, if you have a spouse that may might want to travel with you to like CME or other business events, that’s a way for you to write off their travel through the business as well.
Medical reimbursement plans are wonderful, too. If you have a family member that has a lot of medical expenses, and you’re not eligible for an HAS, then this is a way for your business to reimburse you for all of those out-of-pocket medical expenses, and there’s very specific ways that you have to set it up to make sure that it works out. Like, if you’re a sole proprietorship, then you have to make sure to have a spouse as an employee, or if you’re a C-corporation, then you can be the employee. But this is a really great way for you to write off medical expenses if you generally save $10,000 or more. There’s also lots of different strategies around tax advantage investments, things like oil and gas programs or rental properties. This will allow you to lower your taxable liability through these different types of investments, whether it’s through depreciation with a rental property, or with oil and gas, there’s an upfront deduction for the investment that you’re putting in, and it helps you also diversify your portfolio.
There are also several states that have incentives, tax incentives, and credits for those who are primary care physicians, as well as if you’re working in rural care. These are just a few states that I’ve listed that have these advantages. And so you want to take a look at where you’re going to be working and seeing if the place that you’re going to be working at will have those programs available.
What now? Great! You’ve earned all this money. You’re saving all this money. What’s the IRS’s take? And what part do they want in this, and how can you make sure you’re staying compliant? Well when you’re a W-2 employee, your taxes are being taken out on your behalf through your pay stub, but when you’re 1099, no taxes are being withheld, and so the IRS wants their money when you earn it, and so they say, hey, on a quarterly basis, you have to be making payments based on how much you’re earning. You either have to pay 110% of the prior year tax, that’s if you are over $150,000 of taxable income is 110%. But basically, you’d have to either pay 110% of the prior year tax or 90% of the current year tax to stay safe from underpayment penalties, and that’s whichever one is lower. So if you’re not quite sure well, how much tax am I going to have at the end of the year, the safe bet is to just do 110% of the prior year tax, especially if you know you’re going to be earning more in the current year. Then that will at least keep you safe from underpayment penalties. And don’t forget that this isn’t only just for the IRS. It’s also for the state and the state conforms to the IRS. So it’s the same 110% of prior year or 90% of the current year tax.
And I highly recommend you make those payments online through IRS.gov or the State Department websites as opposed to mailing a check. You wouldn’t realize how many times we’ve seen people writing checks, and it gets posted to the wrong account, and then it takes forever to find out. Okay, where did the IRS you know, post it to the wrong account, because it gets lost in the mail. If you do mail, you want to make sure to send it certified with a green return receipt so you know that they got it, and they can’t say, oh, well, we didn’t. You never sent it. You need to have proof that you’ve sent these things. If you just do it online, you get immediate confirmation that it’s been paid, and you can save that for your records as well.
Thank you so much for being on today, and I know that we went through things very quickly. There’s so much that can be covered. But hopefully, this gives you an idea of where you can start, where you can be deducting, what sort of retirement you need to be on. And so then, that way, you can at least start thinking of these things and setting yourself up for success. If you have questions, please feel free to reach out to me, check out our website. We have lots of free resources on there as well as Wealth Academy, which can help you guide you through this entire process. Thank you so much.
Rachel Jepperson: Well, a big thank you to Alexis for sharing your expertise and guiding us through some critical tax strategies. We hope you’ve gained some valuable insights into how you can keep more of what you earn as a locum tenens physician. If you have any tax questions, as Alexis mentioned, please reach out to her. And if you’d like to learn more about how Weatherby Healthcare can support you and your locum tenens career, please don’t hesitate to reach out. We’re here to help you make the most of all your opportunities. So thank you again for joining us, and we look forward to connecting with you soon. Thanks again.
