Jovan Johnson, MBA, CFP®, CPA/PFS
Transitioning from a W2 employee to a 1099 contractor as a physician comes with its challenges. You transition from being an employee to becoming a business owner. You become solely responsible for paying taxes directly to the relevant agencies and keeping track of your 1099 income and expenses.
However, there is a significant upside to making this transition. You can now take advantage of significant tax-saving opportunities that are not available to employees. In this article, we will explore some of the most common 1099 physician tax deductions.
1099 Physician Tax Deductions:
1.) Uniform (Scrubs) and Medical Supplies
As a 1099 physician, you likely will purchase new uniforms and medical supplies often. You will have to cover these costs yourself. However, be sure to keep track of these expenses as they are tax-deductible. Some of these expenses may include:
- Scrubs
- Shoes for work
- Whitecoat
- Masks
- Gloves
- Stethoscopes
2.) Travel
As a 1099 physician, you will travel more frequently compared to W2 physicians. This travel can include moving between states for various contracts or attending medical conferences. To ensure your travel expenses are tax-deductible, they must be ordinary and necessary for your business. Common tax-deductible travel expenses include:
- Hotel costs
- Travel meals
- Tips
- Flights
- Transportation (i.e. Uber or Taxis)
- Dry cleaning and laundry
- Mileage to contract assignment
3.) Dues and Subscriptions
As a physician, maintaining your professional credentials and staying updated with the latest industry information is critical. Expenses related to dues and subscriptions can be tax-deductible, provided they are necessary for your business. This includes membership fees for professional organizations, subscriptions to medical journals, and costs associated with continuing medical education (CME). Keeping track of these expenses not only helps you stay informed and connected but also provides valuable tax savings.
4.) Home Office Deduction
If you are a 1099 physician, you likely perform some business-related tasks from home such as taking phone calls, answering emails, participating in conference calls, completing charts, or conducting telemedicine sessions. Designating a home office can provide you with significant tax deductions.
You can deduct a portion of your rent or mortgage, utilities (including internet), and other home office expenses. To qualify, ensure that the space is used regularly and exclusively for business purposes.
5.) Legal and Professional
Depending on the complexity of your situation, you may need to hire professionals such as an attorney or CPA to help manage your business. Whether you contract an attorney to set up an LLC for your contract work or hire a CPA for bookkeeping and tax management, these legal and professional costs are tax-deductible.
In addition, as a 1099 physician, you may have to deal with complex multi-state tax issues. Consequently, it is often a great idea to seek help from qualified professionals. This not only helps you optimize your business finances but also allows you to take advantage of tax savings.
6.) Technological Devices (i.e. iPhone, MacBook, or iPad)
One hidden perk of being a 1099 physician instead of a W2 physician is the ability to write off the costs of technological devices such as iPhones or MacBooks. If you purchase new devices primarily for business purposes, these costs become tax-deductible. Additionally, you can deduct the percentage of your cell phone bill that is used for business purposes.
7.) Retirement Plans
Funding a self-employed retirement plan is an excellent way to reduce your taxable income. Many of these plans allow pre-tax contributions of up to $69,000 or more. With an effective tax rate of 30%, this could result in over $20,000 in tax savings. Two of the most common self-employed retirement plans are the Simplified Employee Pension (SEP) IRA and the Solo 401(k). Both plans allow pre-tax or Roth contributions. The contribution type should depend on your financial goals and retirement plan.
As an independent contractor, you are responsible for opening, funding, and managing your self-employed retirement account. Consulting with a qualified professional is key, as the best retirement plan for you will depend on your business structure, profit, and long-term goals.
Final Thoughts
This article does not include an exhaustive list of all the available 1099 physician tax deductions. Be sure to consult with a tax professional to help you take full advantage of all available deductions.
To maximize these business deductions, you must keep track of your expenses using an effective bookkeeping system. Good record-keeping is the best way to limit audit risk.
If you are in search of a CPA, please feel free to book a free consultation with our team.
Disclosures
None of the information provided is intended as investment, tax, accounting, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Piece of Wealth Planning LLC does not promise or guarantee any income or particular result from your use of the information contained herein.
