We recently partnered with Alexis Gallati of Cerebral Tax Advisors to do a webinar focused on how locum tenens physicians can best optimize their finances and taxes. You can see a video of the full webinar below.
We received so many questions at the end of the webinar we weren’t able to get to all of them. Below are the questions we missed with Alexis’s responses.
- How do we go about finding a CPA to assist with multi-state taxes purposes, do you strongly recommend it? I do recommend it if you set up an entity. If you are a sole proprietor, you just need to keep track of income and expenses by state. But when you register as a PLLC/LLC or corporation, there are a lot more hoops to jump through to stay compliant on the federal and state(s) level.
- My understanding is some states don’t recognize PLLC as an entity – for example I don’t think Hawaii does. That is correct. OH is another state that doesn’t recognize it. In that case you are just a general LLC.
- Can I employ my spouse if she needs VISA? I am not an expert in international tax law but it is my understanding that it depends on the country of origin and the spouse’s skill set on whether you can employ your spouse to assist in her efforts in applying for a VISA.
- If we’re locums in multiple states and use a solo 401k, how can we apply that to state tax deductions? Can we deduct the full $56k for each state or just one? The solo 401k contribution is an annual $56k maximum, if you qualify. Most states use the Federal Adjusted Gross Income (which takes into account your retirement contribution) as the starting off point in their calculations then adjust up or down based on state tax law.
- Can you comment on QBI deduction for small business as a physician? Great question! As a physician, you are a specified service trade or business which means you are subject to income limitations when trying to take the 20% QBI (Sec. 199A) deduction. If you’re income is over $415K married or $207.5K single, you are not eligible for the deduction at all. If your income is between $315K-$415K married or $157.5K-$207.5K single, you only receive a partial deduction. Under $315K married or $157.5K single, you receive a full deduction. It is important to work with your tax advisors to apply tax strategies that will lower your income below the phase-out level.
- Can you deduct health insurance if the premium is Medicare advantage plan? Yes!
- Do you have to pay quarterly taxes if you hold off on taking a salary or can you pay it at end of year without penalty. The IRS says you have to pay tax on your income as you earn it. Unless you tell them otherwise on your tax return (Form 2210 Underpayment of Estimated Tax), they assume you earned your money evenly throughout the year. To avoid penalties, you will need to pay quarterly estimated tax payments but you can base it on the actual amount you earn. So, if you earn all your 1099 income in the last quarter of the year, you will have to tell the IRS on your return that you earned your income in the last quarter of the year so underpayment penalties can be calculated based off of when you earned it.
- As a new residency graduate starting to apply for locums work, I just got an LLC, single member but now I don’t know if S-corp if better for me. It depends on how much you are grossing as a locum worker (along with the income earned from your residency in the first half of the year and other income you earn through things such as investments) and what your financial goals are. In general, if you will be making over $100K, I start looking at whether the S-corp may be the better option for you. However, there are so many variables (including the Sec. 199A (QBI) deduction) that you will want to run a tax projection to see what saves you the most in tax.
- I am PLLC. How do I pay myself a salary? If you have not elected to be an S-corp or C-corp, you pay yourself through distributions from your business checking account. How do you recommend that this is documented? Use applications such as QBO or Excel to keep track of all your income, expenses, and distributions. Don’t forget to save receipts! And how much? As a PLLC (not electing S-corp or C-corp status), you may pay yourself as much as you want as long as you cover your expenses. You will be taxed on 100% of your profit no matter how much you distribute to yourself.
- Can you still set up one of the different entities you mentioned if you are doing both locum and non-locum work? Yes! You can have both W-2 work and set up an entity for your work as an independent contractor.
- So I travel full time with no real residence. In between assignments I often stay at hotels but I do work on the road, case reviews etc… can I deduct any hotel costs? This is a complicated issue because you are considered a “transient worker” to the IRS. The IRS defines transient workers as a “taxpayer with no regular place of business and maintains no fixed home, each place the taxpayer works becomes the taxpayer’s tax home. Therefore, the taxpayer may not deduct any travel expenses.” However, if you meet two of the following factors, then you can establish a “tax home” which will allow you to take those deductions.
- Taxpayer performs some work in the vicinity of his/her main home and use that home for lodging while doing business there.
- Taxpayer incurs duplicate living expenses while on business travel (example – hotel room in area A and a hotel room in area B at the same time).
- Taxpayer has not abandoned the area in which your historical place of lodging and main residence are located; taxpayer has family members currently residing at this main residence or frequently uses this main residence for lodging.
It’s important, especially in your case, to keep meticulous records of your travels.
If you have additional questions about your tax situation please feel free to reach out to Alexis, 865-281-1461 or firstname.lastname@example.org. If you have questions about locum tenens please check out Weatherby Healthcare.