Locum tenens taxes webinar: Keep more of what you earn in 2026

Weatherby 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 locum tenens taxes, from which business structure to choose to how self-employed physician tax deductions work, our tax webinar has you covered. We tackled the most common questions about taxes, deductions, and retirement for you to keep more of what you earn in 2026.

Watch the full webinar

Tax webinar highlights

Why planning matters for locum tenens taxes

Moving from W-2 employment to 1099 work offers greater flexibility, but it also requires more involvement in tax planning. Proactive planning helps physicians reduce tax liability, avoid underpayment penalties, and gain clarity around their finances rather than reacting at tax time.

How business structure impacts your taxes

While many physicians form LLCs or PLLCs, the tax outcome depends on how the entity is taxed. Sole proprietorships and partnerships expose all profits to self-employment taxes, while S corporations allow income to be split between wages and distributions, reducing Social Security and Medicare taxes when reasonable compensation is structured correctly.

Discover self-employed physician tax deductions

Locum tenens physicians can access deductions unavailable to W-2 employees, including health insurance, HSAs, home office expenses, professional supplies, CME costs, and mileage. Business mileage, vehicle expenses, and IRS per diem rates for travel can also significantly reduce taxable income when properly documented.

Understand recordkeeping and compliance requirements

Deductions only work if they can be substantiated. It’s best practice to keep business and personal finances separate, save itemized receipts, retain records for several years, and use accountable plans to reimburse personal expenses paid on behalf of the business. Automation tools can help simplify compliance and reduce errors.

What to know about retirement and advanced tax strategies

Retirement planning can be both a tax-saving and wealth-building tool. The webinar compares SEP IRAs, Solo 401(k)s, cash balance plans, and backdoor Roth IRAs, discussing which options are most effective for high-earning locum physicians. Additional tax strategies, such as hiring family members, medical reimbursement plans, and tax-advantaged investments, can also be longer-term considerations for tax savings.

To learn more about working locum tenens, view today's job opportunities or give us a call at 954.343.3050.

Webinar Transcript:

My name is Alexis Gallati and I am the founder and lead tax strategist at Cerebral Tax Advisors. And I'm sure as many of you have felt about taxes, I feel exactly the same. I feel that I pay way too much in taxes and a lot of physicians do. So that's why really a lot of physicians decide to go from W2 to being 1099. And that's what we're going to talk about today. We're going to talk about keeping more of what you earn as a locum tenens physician.

Why planning matters for locum tenens taxes

So again, my name is Alexis G. And I'm really excited to be talking to you today. As a wife of a physician and a daughter of a physician, I have lived the struggles that you have lived when it comes to your finances. And for over the past 20 years, it has come apparent to me that majority of physicians and medical professionals in general do not understand taxes, their finances. I mean, face it, you guys were not provided that information in school. So I really made it my mission to educate medical professionals on how they can be saving more in tax.

Really a little bit about myself. I have my MBA, my master's in tax. I also did my undergraduate in accounting and finance. You know, I'm an enrolled agent. I did a three year fellowship in IRS representation and I am also a certified tax strategist. And I started Cerebral to really focus on that proactive tax planning while also providing the necessary services of doing tax returns. Because of course compliance is absolutely necessary and very, very important. But that doesn't mean you have to leave the IRS or your state a tip. So I'm really proud of the work we do and being able to achieve on average over 453% return on investment with our tax plan design services. So let's get started.

We're going to be talking about a number of different topics tonight. We're going to talk about what entities you should choose, what deductions can you take, how long do you have to actually keep those records? What you should be keeping, how it should be kept. Really important topic of retirement. Okay, what type of retirement account should you have? How much should you be putting away? Talking about quarterly estimated tax payments and just talking about additional strategies that can help you lower your taxes. Of course, each one of these questions that you see on the screen are questions that I hear weekly, sometimes daily from medical professionals that have started working on their own. So let's get to it. Let's start saving you money.

How business structure impacts your taxes

We're going to first talk about entities. The type of entity that you create for your business has a lot of bearing on how that money is going to be taxed. And there are four different types of entity structures that you need to be aware of when it comes to your business.

Sole proprietorship (LLC)

One is the sole proprietorship or the single member LLC. And as we're talking, I'm going to be using the LLC or PLLC kind of interchangeably. Really the difference is that the limited liability company, the LLC or the professional limited liability company act in the same way. But there are restrictions around the PLLC. You have to actually be a licensed professional, like a medical professional or CPA or an attorney to have that special PLLC designation.

And the LLC itself is actually not even a tax designation. It's a state formed entity. The state formed entity and LLC can be taxed as any one of these four types of entities you see on the screen. So it can be, it's automatically, excuse me, taxed as a sole proprietorship, which basically means it's on your Schedule C on your Form 1040. But if you have multiple partners, it will be a partnership. If you do an S Corp election then it'll be taxed as an S Corp. And if you do a C Corp election, it'll be taxed as a C Corp. Now there are other types of entities that you can just start with a corporation or a professional corporation. And if that's the case, if you set that up like maybe you're in California where the PLLC is not allowed or it's not even recognized, you have to actually start as a professional corporation or PC. And so if you don't do an S election then you will automatically be taxed as a C Corp.

So you might say, hey, I'm an LLC. Okay, cool, but how are you being taxed? So with, again with that LLC, with being taxed as a sole proprietorship, 100% of your profit is subject to Social Security and Medicare tax. So if you say, hey, I earned $10,000 this year, but I have more than $10,000 of expenses, you will have a loss and you won't have to pay any Social Security or Medicare tax.

Partnership

However, if you have multiple partners, as I mentioned earlier, then you would be a partnership and they're taxed the same way as a sole proprietorship. 100% of your profit is subject to Social Security and Medicare tax, that self employment tax. But this is really important to have this LLC present because if you do have multiple partners, the partnership helps to separate the liability between each of the partners. I definitely recommend that if you have a partnership, you work with an attorney to establish a proper partnership agreement. And that's just to dictate, hey, how are the profits and the losses and other different parts of your earnings allocated? And even losses and capital gains, how are they all allocated between each of the partners.

S corporation

Now the S corporation is taxed very differently. It is taxed at the individual level, just like a sole proprietorship and a partnership. So the sole proprietorship, the partnership, the S Corp, they're all taxed on the personal tax return that Form 1040. But an S corporation will have a separate tax return very similar to the partnership. Partnership you are filing a Form 1065. The S Corporation, you are filing a Form 1120S. And both the partnership and the S corporation will issue a K-1. And then the tax is, you know, excuse me, the income is taxed at the individual level through that reporting on the K-1. So really the partnership tax return and the S corporation income are both taxed as a pass through entity.

Now the S corporation is different in the way that it is taxed or the income, excuse me, from the S corporation is taxed different than a sole proprietorship or partnership. Remember that 100% of the profit is subject to self employment tax. When you're an S corporation, your earnings are allocated between W2 wages and profit and the W2 wages are subject to Social Security and Medicare, but the distributions and the profit are not. So that's where you're actually going to be saving tax, of course, saving that Social Security Medicare tax.

So if you're earning $400,000 gross revenue and you only have a salary of $150,000, then you're saving Medicare and Social Security Medicare tax on any amount above that $150,000 of salary. You do have to pay yourself a reasonable compensation when you are an S corporation. And even with that C corporation as well. So the IRS says, hey, you know, you're not allowed to pay yourself a really small salary to avoid Social Security and Medicare tax. You need to actually go and pay yourself what's reasonable, what you would pay someone off the street to be doing the same work that you're doing.

The great thing about being your own business owner is that you are not spending 100% of your working hours doing your work as a physician. You need to allocate your time between your work as a physician, doing your bookkeeping, doing your administrative work, maybe even emptying the waste baskets as a janitor in your office. So all of those different jobs have different hourly rates. And so that hourly rate, we want to blend all of the different ones together which may result in a lower salary. So if you were to hire somebody off the street to do the work that you're doing as a physician, you might pay them $200,000. But since you're not spending 100% of your time doing your work as a physician, you may be able to pay yourself a lower salary like $150,000 and justify it with the IRS and that will help you save on Social Security and Medicare tax.

You're able to deduct all the same sort of expenses being a sole proprietor, a partnership, an S corporation. There's just some expenses that you have to add back to your income. For example health insurance. If you are more than 2% owner in your business, if you deduct any insurance through your S Corporation, you have to actually add that back to your W2. But you will get a deduction for your self employed health insurance on your personal tax return. It's just a quirky rule that the IRS has and they like to sometimes make you jump through hoops.

Now as a reminder, the partnership and the S corporation are pass through entities and you pay all of that tax at the individual level the same thing for the sole proprietorship. Now I guess I do need to mention that in some states the S corporation will have some state tax like California or Illinois who each have about a 1 1/2% tax at the state level on the S corporation. So it's important to know the rules in your state and how they're treated and if there's any sort of franchise and excise tax involved for that state.

C corporation

Now the C corporation is an entity where the income is actually taxed at the entity level. There's no pass through to the owner unless they are paid out a separate dividend. And this is where many of you may have heard that a C corporation has double taxation. That's because the income is taxed at the C Corp level and then taxed again when the dividends are distributed to the shareholders or the owners. You as a physician, in order to get money out of that C corporation will be on a W2 and all of your earnings are subject to Social Security and Medicare. And a lot of times you're able to go and deduct not only the wages but a lot of other expenses as well that you might not be able to deduct through the S Corp. So like medical insurance can go through and be a deduction directly for the C Corp. You won't have to add it back. Things like your disability insurance, you don't want to deduct that through any of your businesses. And that's just because you'd have to pay tax on any claims that you receive any payouts if you deduct those premiums.

So in conclusion, you have many different options, these four different options to choose from when it comes to your practice. Most likely, especially if you're just a single owner, you're going to be choosing between that sole proprietorship or the S corporation. And there's many considerations that you need to take. Obviously you want to know how much you're going to be making and see if there's a good cost benefit to having to do the S corporation and the extra administrative duties of the S corporation. But you know if you have partners then you will be that partnership. But that partnership could also elect to be an S corporation. So really that's why I love the LLC, the PLLC. It really allows you to have a lot of flexibility between the different entities.

Self-employed physician tax deductions and travel strategies

Let's talk about what you can deduct as a business owner. The book really just opens up for business owners and how they can move as many personal expenses to being legitimate business deductions through the business. Some of the most popular and one that we've already discussed is health insurance. Now as a locum tenens doctor, you are most likely going to be responsible for that health insurance. So you'll want to go to the marketplace, go look at private health insurance and find a plan that really works well for you. There are different plans out there like high deductible plans that allow you to participate in an HSA or health savings account. These are wonderful because they are triple tax advantage.

Basically you get a deduction going in, it grows tax free and it comes out tax free when you use it for qualified medical expenses. So there are a lot of benefits to doing that health savings account and you're able to almost treat it like another retirement plan. Especially if you're a higher earner and you can go and pay your medical expenses out of pocket. You make that HSA contribution every single year. You don't spend it and a lot of the different types of HSA plans allow you to go and invest those funds. So you can just put it into like an index fund or you know, any other thing you'd like to that's available in that account and that will allow it to really grow exponentially. And when you actually need to use it for when you're older, you can submit receipts later on that you've paid out of pocket. Even if those receipts are 30 years old, there's no limit at the moment to how old they have to be. You go and submit those claims and then you can get the money out when you actually need to use it. And you know, of course if you have an accident or something happens, you need to access it, by all means, use it. That's what it's there for. But if you don't, pay for those co pays and vision, dental, all those things out of pocket and then you will submit them later.

Let's also talk about the home office deduction. And this is a really great way for you to establish a precedence that your home is used for your business. That won't be your whole home, but let's just say it's even 10%. What happens is you're able to then write off 10% of your home expenses like utilities, homeowners insurance, cleaning, internet, etc. So you're able to write off 10% of all of those expenses through your business. And you just do that by taking the square footage of your home and also the square footage of your office and getting the business percentage and then applying it to your overall expenses. And so you can also write off direct expenses. So if you have to purchase a computer to look at images online or you're having to buy a desk, you know, all of those are considered 100% deductible to the business because you're using it for business purposes.

Of course, when it comes to other normal expenses like office supplies, equipment, cell phones, going to conferences for CME or even, you know, scrubs if you have to go in to the hospital, those are all considered valid deductions. And you know, we'll be talking about how to keep the records properly in a moment. Another one you might want to consider, especially since you've established that home office is that all the mileage that you take going to the airport or going to Staples for office supplies to lunch with a colleague to discuss business, all of that mileage is considered business mileage and you want to go and keep track of that mileage and you can be using apps like MileIQ that go and track where you're going. So it just pops up a notification saying, hey, you just drove five miles.

Well, you can tell if it's personal, if it's business, it learns that going from home to the grocery store is personal and going from home to the hospital is business. So it becomes very, very quick, easy to categorize or automate your mileage. And then it pops out a nice report at the end of the year where you can either take the standard mileage rate that the IRS puts out every year, or you can take the—so like say 60% of your mileage is business mileage. You can go ahead and apply 60% mileage to the expenses of your vehicle. Things like gas, tires, repairs, insurance, etc. You can go and apply 60% to all those expenses, and then write it off through your business. Now, even if you purchase a vehicle, there may be opportunity to write off some or all of that vehicle purchase as long as you meet specific guidelines.

Last but not least, many of you actually travel for your locum work. And most of the time your lodging and your meals and incidentals are covered. However, every once in a while, I've come across taxpayers or physicians that have not gone and aren't reimbursed for some of those things. And the government has actually put out per diem rates that allow you to go and apply a standard rate depending upon where you're going as opposed to using your actual expenses. So let's say, for example, you go to Orlando, Florida and the standard rate for a night in a hotel is $200, but you've used points or maybe you're staying at a place that only cost you $100. Well, you can take the difference, that $100 difference and use the standard rate. And now you've gone and created a deduction for yourself that you didn't even have to pay for. You can do the same for meals and incidentals as well. So just Google per diem rates and it'll pop up a government website where you can look up the rates for where you're going.

Recordkeeping and compliance requirements

So now I've told you a whole bunch of different deductions you should be considering as a locum tenens physician. So what is the proper record keeping system? Because remember that you will not get a deduction if you don't keep proper records. You know, you might get to have it, but the IRS may deny it, and they're allowed to deny it if you can't substantiate your records. So at minimum, you want to keep all of your records for at least three years. I prefer seven years. And the three year rule is just because the IRS only has three years from the filing of a tax return to audit a tax return. But really you should keep it longer just in case. And you really got to treat your business like a business. That means when you've set up that LLC, even if you're a sole proprietorship and you decide not to even go the LLC route, then you need to still keep your business and personal records separate.

This is because the IRS does not like to see the commingling of personal and business funds. And if it's really messy, they might deny certain legitimate deductions because they really can't tell if it's actually personal or business. So make sure to keep your bank account separate and then having separate credit cards as well. Save receipts. And that means itemized receipts. You can't use credit cards or bank statements as receipts because they can't show the IRS what you actually purchased. If you go to Costco and buy a bunch of food and printer paper, well, they need to know that, okay, great, this is printer paper, not food, you know, or vice versa. So you need to have those itemized receipts to substantiate that you actually purchased a legitimate business expense.

Now, when you are a partnership, an S corporation, or a C corporation, you really need to have an accountable plan set up. So that way you can make sure to—this is essentially like a quirky piece of paper policy that your business needs to have to allow your business to reimburse you for business expenses paid with personal funds. Let me repeat that one more time. Business expenses paid with personal funds. So let's say you do go to Costco and you purchase food and printer paper, but you put it on your personal credit card. That's okay. That doesn't mean you lose the expense, it's just that you need to have the business reimburse you for that $50 of printer paper. So what happens is this accountable plan gives your business permission to do that and you will just move that $50 from your business checking to your personal checking so that you're able to take that deduction through the business.

As I mentioned earlier, there are definitely a bunch of apps out there that can help with all this record keeping. And the more automation, the better. If you're like me, if I can make it easy on myself, I am more likely to do it. So using apps like MileIQ or even like Monarch Money, that is a personal financial app that can help you with keeping track of all of these personal expenses that you need to reimburse through your accountable plan. Monarch Money is really wonderful. You know I've been using it for years and it really helps you keep track of all those personal expenses very very easily and creates a net worth statement, et cetera.

When it comes to your business though, remember we want to keep your personal and your business accounts completely separate. So you would have something like Monarch Money or You Need a Budget for your personal. But then you would have QuickBooks Online, Excel, Xero to use for your business expenses. You really want to keep, like I said, all those things separate. And if you are interested in having an Excel, you know, a free Excel spreadsheet that shows a lot of common expenses not only for just a general business but also for physicians, please send me an email which I'll show you at the very end of this presentation so that I can send you a nice physician's expense worksheet. But I do highly recommend using QuickBooks Online or Xero or just something that's a little more automated to keep things very organized and efficient.

Now one thing I do want to point out is that for that per diem rates, if you're going to end up doing any sort of per diem work, or if you're also going to be going and having work that is over a year, then you must avoid contracts over a year in length in the same geographical location in order to deduct work related travel expenses. Now the IRS does allow you to deduct those travel expenses if it's going to be considered a temporary arrangement. If your assignment will go over a year, then you have to request reimbursement of expenses in your contract. So just be aware of that little quirky rule.

Retirement and advanced tax strategies

Retirement. This is a wonderful way for building wealth as well as saving taxes. There are several different types of retirement accounts that we're going to discuss and the ones I like the most and ones that I say to avoid. The first one is the SEP IRA. And the way that this is calculated, essentially it's 20 to 25% of your profit or $72,000, whichever is less. And then it's really an inexpensive way to—excuse me, inexpensive in setup and easy administration. But the only problem with it is it precludes you from doing a tax free backdoor Roth. And we'll get to that in a second. So generally I do not recommend SEP IRAs because it does not allow you to do that tax free backdoor Roth.

Now Solo 401ks are a wonderful way and what my preferred way of starting out when you are a sole proprietor. Even if you have a partner, this is a really great way as well to provide yourself with a retirement plan and should really be the base minimum. So instead of that SEP IRA, start with that 401K. If you're all alone and you're just a sole practitioner or even have a spouse on the account too, that's okay. It's still going to be a solo 401k because when you're married, you're considered the same.

And with the Solo 401K, that's a defined contribution plan, which basically means the IRS is defining how much you're allowed to put away each year. So in this case with the 401k, you have an employee deferral and you have an employer contribution. Remember, you're wearing two hats. You're an employer and your employee. So that employee deferral for 2026 is $24,500. The profit sharing portion is generally 25% of profit or your W2 if you are an S Corp or a C Corp or $47,500, whichever is less. And so that's the amount for 2026. This changes every year. So I highly recommend that if you're watching this in a later year, that you go and check the year that you're referencing.

So overall, between that employee deferral and the employer contribution, the total limit is $72,000. The administration for this is more expensive than a SEP. But really it's not that expensive. It's super easy to open up. You can go to Fidelity or Schwab, really any of those major brokerage firms and just Google solo 401k Fidelity and it will pop up. And it's very easy to administer. When you start to have employees, it starts to get a lot more complicated. And that's really where you should be working with a professional to make sure that all of the calculations are done properly. And you also have to do a Form 5500 for really any of these retirement plans once you reach certain limits.

Now, if you want to be putting more away than just the $72,000 a year, you can start to look at doing a defined benefit plan and particularly a cash balance plan that you pair with your 401k profit sharing plan. This allows you to potentially be contributing into six figures into the plan. I generally recommend that you don't do cash balance plans until you're at least over 35. The older you are, the more you're going to be able to put away each year. And that's just because you're getting older and there is a shorter period of time for you to reach that benefit.

As I mentioned before, with a solo 401K, excuse me, that's a defined contribution plan. So the IRS is defining how much you're allowed to put in each year with a defined pension plan or defined benefit plan, cash balance plan. Those are defined benefit plans. And so that means that the IRS is defining the benefit by the time that you retire. And an actuary calculates based on how old you are, how much you make and the balance of the account at the end of the year, how much you're allowed to put in each year, assuming a consistent rate of growth to reach that defined benefit, which for this year is about $3.6, $3.9 million. It changes every year for inflation.

Now if you have employees, these are definitely plans that you should be working with a professional. You have to work with an actuary to do those calculations. And there are a lot of different third party administrators out there that will go and do the administration and calculations around that plan. I also recommend working with an investment advisor to make sure that you have those cash balance plan funds in the correct portfolios to maintain that 3 to 6% growth. So with all this extra complexity, of course they're more expensive to set up and maintain.

Now with the Solo 401k, with the cash balance plan, you're also able to do a tax free backdoor Roth. For 2026, the maximum contribution is $7,500 and you get an extra $1,100 catch up if you're older than 50, 50 years old or over. Now with a normal Roth contribution, you can just put that money in directly into your Roth. However, if you make too much money over $252,000 for joint or $168,000 for single in 2026, you are not able to do a direct Roth contribution. So what you do is you put that $7,500 into your pre tax IRA and then you roll it over to your Roth IRA.

Now since you're not able to deduct that $7,500 on your tax return for a pre tax deduction because you make too much money, the money that you're putting into there, that $7,500 is funded with post tax dollars. So when you move over those funds to the Roth IRA, you're moving post tax dollars into a post tax fund. So it's a non taxable conversion. And so you have to report that every year on your tax return, showing the contribution that it wasn't deducted and then showing that conversion and telling the IRS, hey, I actually have basis, I've already paid tax on this money, so it's not taxable.

Now it's important to know that if you have any traditional IRAs, SEP IRAs, simple IRAs that have balances in them, by December 31st of the year, you are going to be subject to the pro rata rules. And in a nutshell, that means that the IRS can't distinguish between post tax dollars and pre tax dollars in your IRA. So when you go to put that money, that $7,500 into your Roth IRA, they're unable to see. Okay, when you move that money over, was that moved over with post tax dollars or pre tax dollars? So to solve this, you have to have no pre tax IRAs open with balances. You just want to have a zero balance pre tax IRA open that you use to put that money, those post tax dollars in. And then there's zero question whatsoever that all of those dollars that you're moving over to the Roth IRA are post tax dollars.

And the Roth IRA, the backdoor Roth IRA, is super simple to administer, to go and set up. There's basically no money to set it up. You can just open up free accounts through Fidelity or Schwab, institutions like that and do that for yourself. Beautiful thing is that even if your spouse does not work, as long as you're working, they can go and participate in doing their own backdoor Roth as well.

So what are some additional strategies for lowering your taxes? Well, one of my favorite is hiring your kids. That's the only reason to have children, right? Is to make them work, go work on the farm or in your business. Well, as long as your child is 7 years or older, that's the court tested age. Then what you can do is shift your income from your higher tax bracket down to their lower tax bracket or non existent tax bracket. This is a wonderful, wonderful way of going and saving for their retirement because you can pay them $7,500 for example, and put that money into their Roth IRA. Now of course they have to have a legitimate job in your business. You have to treat them like an employee. They need to be on a W2, not 1099, otherwise you're missing out on all those savings. And if you're a sole proprietorship or a partnership, you do not have to pay FICA tax or Social Security Medicare tax on your child's earnings. So it's wonderful, wonderful, highly recommend it.

And if you have a spouse that wants to participate in retirement, this is also a really great way for them to have a job in your business and be able to put money into your 401k or your cash balance plan. Another thing to think about are medical reimbursement plans. Now if you have an HSA, you cannot do a medical reimbursement plan and an HSA at the same time. But some individuals might have a lot of medical needs that it makes more sense to do a medical reimbursement plan because they can get a bigger deduction because they have such large medical expenses and writing off through the business.

Some other tax advantage investments you might want to consider are oil and gas programs that provide a really large first year tax deduction. And this can be used against your ordinary income like your W2 or your business income. And of course you can also think about rental properties as well. Short term rentals, long term rentals, real estate syndications. So they all have different ways of being taxed. So excuse me, real estate syndications and long term rentals or even short term rentals, they're first taxed as passive investments. But if you qualify to be a real estate professional or you qualify for that short term rental exception, then you're able to change the character of any losses from being passive losses to active losses. And those active losses can go against your W2 income.

I could spend hours talking about these two different strategies just by themselves. And I highly recommend if you're interested in any of those sort of strategies, you talk to a tax professional that can give you the full picture and make sure it makes sense for your situation. Because even with like rental properties, it's a second job and you want to make sure that you understand even the administrative roles around it and that you're not letting the tax tail wag the dog. You want to make sure that they are making sense for your financial situation and your working situation.

State-specific incentives for medical professionals

Now there are a few state specific incentives primarily for medical professionals. Some states like Colorado, Maryland, even New York have primary care preceptor tax incentives. And these are tax incentives that help train primary care physicians to help combat shortage. There's even rural credits as well, like you go into rural areas and providing medical services there. Some states provide that as a benefit. The other one you might want to consider as well, especially if you're a partnership or an S corporation, is the pass through entity tax election. And as many of you know, there is a cap on your state and local taxes of $10,000 to $40,000, depending upon your income. And so to get around this, many states have a way or an election that allows you to pay the taxes, the state taxes at the entity level. And then that obviously helps to lower your federal tax liability because it's a deduction. But then you get a credit for the taxes paid on your state tax return. So this is a wonderful way again to help lower your taxable liability while kind of circumventing some of the laws that Congress has put into place legally, of course.

So now I've gone and shown you all the different ways that you can actually save on taxes. But of course, the IRS wants its money. The tax system is a pay as you go system. So we need to make sure to pay your taxes on time in a quarterly fashion. Otherwise you will be hit with underpayment penalties. So the IRS says you have to pay your income as you, or excuse me, pay your taxes as you earn it. When you're a W2 employee, that's being done for you on your behalf through withholdings. But when you're 1099, those taxes aren't withheld, so the IRS says on a quarterly basis. So first quarter is due, April 15, second quarter, June 15, third quarter, September 15, and then January 15 is the fourth quarter. Your quarterly estimates are due.

And you need to pay either 100% or 110% of your prior year tax or 90% of your current year tax, whichever is less, to avoid those underpayment penalties. The 110% would apply to you if you're earning over $150,000 or more. Most of you are going to be. So again, you either have to pay 110% of the prior year tax. So in 2026, that would mean that 110% of 2025 or 90% of your current year tax, which is for the 2026, whichever is less, and that will keep you safe from underpayment penalties. It won't necessarily tell you how much you're needing to pay in tax at the very end, so you might still owe something on your tax return, but you'll be rest assured that you're at least safe from underpayment penalties.

Now, these tax payments are needed for the IRS and your home state and any state that you're working in. So if you have an LLC and you're a resident of Florida, perfect. And you're working in Florida, great. You actually have to pay tax to the IRS because Florida doesn't have a state income tax. But let's say that you are a resident of New York State, then you need to pay tax to the IRS and you need to pay tax to your home state. And all the states pretty much follow the same rule of that 110% or 90%, whichever is less. So you can use the same rule for both federal and state purposes. But if you're working in other states, then you will owe tax to those states. So let's again say that you are a New York State resident, but you work also in Pennsylvania. Then you will pay tax on the income you earn in Pennsylvania and then you will get a credit for those taxes paid to Pennsylvania in New York State. So you're not being taxed twice on that same income. But if one state has a higher state tax than another, you will pay that difference to the other state.

Now, I highly recommend that you make those payments online via IRS.gov and the state department websites for instant confirmation of those payments. Otherwise you're able to go and just Google New York Department, State of Revenue and it will take you there. And believe me, right on their homepage, pretty much of all states, you'll see a make a payment. They want their payment, so they make it super easy for you to find it. But I highly recommend doing it online as opposed to sending checks because I've seen so much human error in either typing in the wrong amount or typing in the wrong Social Security number. By doing it through online again, you get that instant confirmation of payment and that it went to the correct year and it went to the correct Social Security number.

So all in all, just make sure you are making your quarterly payments. So then that way you are avoiding those underpayment penalties that are just completely avoidable and unnecessary.

I really want to thank you all for staying tuned and listening about taxes. I love teaching y'all about these different tax strategies and how you can be saving money. I know I went through a lot and I threw a lot at you. So if you have questions, please reach out. Check out our website, cerebraltaxadvisors.com. There's a lot of great material on there in terms of our YouTube page that has tons of videos and resources like the blog. But if you're also interested in potentially working with Cerebral Tax Advisors, you can go ahead and schedule a tax discovery session so we can see if we're a good fit for each other and if so, to know if you're a good fit for us. If you're earning over $400,000 a year in taxable income, or you're going to have over $50,000 of income as a 1099, which means doing your locum work, we would be a really great fit and we offer white glove done for you service all the way from the tax planning, tax preparation, bookkeeping, business consulting. We can set up businesses for you, etc. Thank you all so much and I hope you have a wonderful evening.

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This article was created with the assistance of AI technology.