Locum Tax Tips: 5 Helpful Tax Deductions for Physicians
Tax Day is almost upon us again. But really, any time of year is a good time for physicians to plan for tax season. And that's even more true for locum tenens doctors, who have a somewhat different set of regulations with which to deal.
Locum tenens physicians (and clinicians) are classified as independent contractors. That means that — unless you're in a special arrangement with your locum tenens recruiter by which taxes are withheld from your paycheck, as some locum recruitment agencies may arrange — you must make estimated quarterly payments to the Internal Revenue Service or face a penalty fee.
While you'll have to pay a self-employment fee as an independent contractor, there are compensations that offset this expense. For instance, if you're working a locum job away from home, the cost of your travel and even your housing can be deducted, providing a tax break.
Beyond the specifics of locum tenens work and your status as an independent contractor, there's a great deal of additional tax information that every doctor should know. This is general information, which is intended solely as a starting point — if you're not up on this knowledge, we urge you to consult a tax professional specializing in medical personnel before filing your next tax return. (Here's a helpful guide on how to find a CPA with medical experience.)
1. Tax-Deferred Retirement Plans
If you’re an independent contractor, as most locum physicians are, "you should be able to contribute 20% of your income" to a Simplified Employee Pension Individual Retirement Arrangement (SEP-IRA), explains the White Coat Investor. The SEP-IRA, a variation of the Individual Retirement Account, is used primarily by business owners to provide retirement benefits for themselves. As an independent contractor, you technically own your own business — namely yourself!
You can deduct "up to a maximum of $50K, with an additional “catch-up” contribution of $5500 if you’re over 50" on a SEP IRA, White Coat Investor adds. "If you don’t make $250K, you can contribute even more than 20% to a Solo 401K, so you might want to use that instead of a SEP."
2. Rural Care Tax Credits
Certain states have implemented incentives for physicians to practice in rural areas by offering tax credits to those who do so. For instance, the New Mexico Rural Health Care Practitioner Tax Credit "allows certain healthcare providers who provide care in rural, underserved areas to be eligible for an income tax credit of $3,000 or $5,000." Oregon's Rural Practitioner Tax Credit Program offers a scaled program worth $3,000, $4,000, or $5,000 depending on how rural the work location is. Georgia has a similar tax credit, and Alabama is currently considering legislation that would implement one, as well. If you consistently work in rural areas, you may be eligible — simply perform an online search of the state and "rural physician tax credits" to easily find out what's available in your location.
3. Tax Incentives for Primary Care Preceptors
Some states are also willing to offer tax incentives for doctors to help train primary care physicians. "With a focus on medically underserved areas, Maryland and Colorado have followed Georgia's lead of offering tax breaks to physicians who serve as preceptors to medical students," explains the American Academy of Family Physicians (AAFP), noting that all three states offer a $1,000 tax credit for "qualifying physicians to serve as preceptors."
In 2014, Georgia "provided $883,000 worth of tax incentives ... and there is no limit on how much the program will provide," the AAFP adds. "The incentive is available for preceptors in family medicine, internal medicine, pediatrics, emergency medicine, psychiatry, general surgery, and obstetrics."
4. Tax Deductions for Charitable Expenses
Doctors — and everybody else — can also take tax deductions for donating money to (or spending it for) a charitable cause. "Any donations to a qualified charity are tax-deductible just like mortgage interest (assuming you have enough total deductions to justify itemizing them) or donating large items such as an old boat," report the physician tax experts at the White Coat Investor.
"You can use Turbotax’s It’s deductible to figure the value of things you give to goodwill. You can also count the miles used to drive to and from your charity of choice and any other expenses associated with donating your time (although you can’t deduct a value for your time itself.)"
5. Medical Business Expenses
Besides travel expenses that locum tenens doctors are encouraged to use as deductions, physicians who work as independent contractors year-round can also deduct business expenses. This includes "office equipment and supplies, medical equipment, CME expenses, licensing fees, communication expenses, board exam fees," explains the White Coat Investor.
But be sure you can reasonably connect the use of these supplies to your work as a physician. How can you be sure of that connection? For an expense to be deductible, "the expense must be considered 'ordinary and necessary,'" writes J.P. Wirig, CPA for Medical Economics.
"Note that as part of an audit, the IRS is allowed to demand copies of invoices and receipts for all expenses incurred, as well as credit card statements and copies of checks or other forms of payment," Wirig adds. "So it is best to keep documentation for anything you think you may want to claim as a deduction."
To find out what's out there for your physician career, search our locum tenens and permanent jobs from the link below.
If you have any questions regarding your tax liability specific to an AMN Healthcare locum tenens assignment — or if you're just interested in discovering a new locum tenens assignment in your area — we encourage you to contact an AMN Healthcare recruitment specialist here.