Adam Ghosh has over twenty years experience as a researcher in the medical field. In that time he has worked with allergists and vascular surgeons, and everyone in between. Now he supplements his early retirement by contributing to Weatherby Healthcare.
When contemplating work as a traveling health professional, you should consider some of the tax deductions that may be applicable to you. Here I discuss several deductions you can claim, as well as tax-related tips to help you do the tax dance as a locum tenens.
When making the switch from static employment to contracted employment, there are several things that will change in terms of filing taxes every year. Below are two of the most important changes that will occur.
Independent Contractor…Not Employee – The biggest change will be that you will no longer be considered an employee of a hospital or clinic. You are now an independent contractor through the staffing company you have chosen. This allows you to claim considerably more than your “employed” counterparts but prevent you from participating in the company’s 401K plan or any other benefits provided to employees (health, dental, etc.).
Tax Home vs. Permanent Residence – A tax home is simply the dwelling you reside in and will continue to be financially responsible for while on assignment. A permanent residence is where you live but are not financially responsible for while away. This will only affect you if you have chosen to switch from one type of residence to another.
For example, if you were renting an apartment by yourself and have decided to take an assignment across the country and decide to move out of your apartment, you will no longer have a tax home.
When you have a tax home, it is implied that your expenses will be doubled while on assignment and, therefore, you qualify for tax-free reimbursements. However, if you live in a “permanent residence” (with parents, a relative, or any place you are not financially responsible for) you may not be eligible for all deductions.
Whether you are considered to live in a permanent residence or tax home, there are still some deductions to take advantage of (talk to your tax professional to know exactly what you qualify for). The following are common claims to report when filing your tax return. Keep in mind that your staffing agency will usually reimburse/cover some or all of the expenses accrued while on assignment.
Everyday Expenses – These include travel, housing, transportation, meals, etc. This is typically covered by the contracting company regardless of your housing status.
Professional Expenses – These include any tools needed specifically for the job (scrubs, tools, etc.), medical license fees, education, and even subscriptions to medical journals and books.
Health Related Expenses – The biggest downside to working locum tenens that you do not qualify for any benefits given to full-time employees. However, some expenses like health insurance premiums may be eligible for deductions come tax season.
Keep Good Records – This may be the most important thing you can do to ensure you get the best tax return. Even if you don’t find it necessary, keep every receipt, invoice, bills, deposit slips, paystubs, etc. This will allow your tax professional to consider every aspect of your assignment. If you want to take it one step further, invest in financial tracking software like Quicken. If it is updated regularly, you’ll have less stress when April 15th rolls around.
Track Income – As an independent contractor, part of your income is not withheld for taxes. So, it’s very important to set aside money each pay period to accommodate for your tax payments. Talk to your tax preparer for an estimated quarterly amount so you can plan accordingly.