Many physicians on our communities have heard about the benefits of 1099 income, and are very excited by the prospect of the associated tax deductions. While we have a more comprehensive article on tax deductions for 1099 physicians, this article will focus specifically on the deductions that many locums physicians take.
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Background on Paying Taxes on Your Locums Income
For those new to locums, you may have only ever been paid as a W2 employee in the past. However, with locums, you are not an employee of whoever you’re working for, regardless of whether you’re contracting directly or using a locums agency. With W2 income, you were likely used to having your taxes withdrawn from your paycheck, and the number of additional deductions you could take against W2 income were very limited, if at all (see our article on tax strategy for the W2 physician). Instead, with locums work, you will be paid as a self-employed independent contractor with the income reported on a 1099 tax form instead of a W2 tax form. These are very different from a tax standpoint. What this means is:
You are solely responsible for appropriately paying the taxes on the income earned. You pay taxes both on the side of the employer and the employee, since you are self-employed. Your locums paycheck will simply be in the amount that you are owed, and you will figure out the rest.
You will have access to more tax deductions, which we’ll discuss below.
You will likely have to pay quarterly estimated taxes, as the government won’t wait a full year to get the taxes that you owe them.
Read our primer on self-employed income as a physician for more information on self-employed finances.
What Deductions Can I Take as a Self Employed 1099 Locums Physician?
The list of potential deductions is long, but there are some principles to keep in mind. First, you must know that anything that is reimbursed to you, whether it be licensing fees, travel related expenses, or things like meals, is not tax deductible. Only expenses that you weren't reimbursed for are tax deductible The next thing to know is that you cannot deduct things that you also use for personal use or that are being tacked on to a locums assignment but are unrelated to it. So for example, if you decide to take a locums assignment in Hawaii, you cannot deduct the costs for the 5 days after your locums assignment is completed that you use to get your scuba diving certification. Third, note that if you are not spending the night away from your primary legal place of residence, you may be unable to deduct several of the potential deductions below such as commuting and meal costs.
You should discuss all of this with your accountant before deciding what’s appropriate.
That said, here is a list of things commonly deducted by locums physicians:
1. Non-Reimbursed Travel Related Expenses:
Airfare and baggage fees
Travel insurance
Rental car or other ground transportation such as taxi or ride sharing services
Personal car
Note that you can either deduct the mileage you put on your personal car at the IRS mileage rate (changes frequently, so check on the latest IRS mileage rate) or you can track in detail expenses related to the car, including insurance, maintenance, repair, and gas, and prorate them according to your use. The second approach is a lot less clean and will require a lot of documentation, so many physicians on our communities opt for the former unless it really results in a much larger deduction to do the second.
Gas
Tolls
Parking
Hotel or other accommodation
Meals (note that this is not a full 100% deduction, but rather a 50% deduction)
Laundry services
Internet fees
2. Professional and Educational Fees and Expenses
Licensing fees and expenses related to licensing
New state license or renewal of a license
DEA registration
NPDB queries
FCVS
Interstate Medical Licensure Compact
Verification services
Fingerprinting
Mailing materials
Using a licensing company
Educational expenses for maintaining licensing and credentialing
Board exams or related study materials or courses
Maintenance of certification
Medical society memberships
Medical books
CME
Journal subscriptions
Medical reference subscriptions
Fees related to CME or professional conference expenses
Related PSG discounts & perks
3. Professional Services You Need to Run Your Business
Attorney fees for setting up your entity or reviewing contract
Accounting services
Administrators for retirement accounts such as a solo401k or defined benefit cash balance plan
Website costs, if applicable, including website developer, SEO service, website hosting fees
Insurances related to your work, such as malpractice insurance or business insurance
Related PSG discounts & perks
Explore related PSG resources
4. Supplies Related to Your Work as a Locums Physician
Clothing (that cannot be used for other purposes - note that a shirt and tie can not be deducted as it can be worn elsewhere, but scrubs can be)
Related medical equipment such as a stethoscope or instruments that you prefer
Special software you need
Related PSG discounts & perks
5. Home Office and Business Related Expenses Necessary to Run a Locums Business
Home office deduction (as long as you exclusively use this space for functions related to your business, such as scheduling shifts, doing accounting, etc.)
Read more about taking the home office deduction as a physician
Cell phone
Cell phone service
Laptop or desktop computer
Internet
Tax software
Printer or scanner and printer paper or ink
Shredder
Headphones or microphone
Postage or shipping fees
Business cards
Credit card fees
Virtual assistant fees
Related PSG discounts & perks
6. Benefits, Including Insurance and Retirement Plans
Health insurance premiums (health, dental, vision)
HSA contributions
Retirement plan contributions to solo401k or SEP-IRA
Pension plan contributions to defined benefit cash balance plan
Explore related PSG resources:
Do I Need an LLC to Take These Deductions for My Locum Tenens Work as a Physician?
The deductions above can be taken regardless of whether you have an LLC, S-corporation, or are filing as a sole proprietor. The benefit to having an LLC or S-corp from a tax savings perspective is related to other things such as saving on payroll taxes or being able to claim other deductions that you may not be eligible for if they were to flow through directly on your tax return. You can read more about this on our article on whether it makes sense to have your LLC file taxes as a S corp. As a tangent, also know that having an LLC, while generally viewed as an asset protection tool, does not shield you from professional malpractice liability.
Conclusion
Deductions can be a great way to reduce your overall tax burden to help make up for self-employed taxes as a 1099 independent contractor. While deductions aren't available for reimbursed expenses, there are plenty of options outlined above for locum tenens doctors to consider. If you are new to self-employed work, we highly recommend working with an accountant to get an idea of what qualifies as deductible expenses to avoid potential issues with the IRS.