1099 Associate Dentist (Independent Contractor Tax DEDUCTIONS)
Dental offices are commonly staffed by various individuals with different types of formal employment agreements. It is not uncommon that some of those agreements are known as independent contractor agreements. So, what are these agreements? How are they structured? Are they a good deal for employees? Employers? We will tackle all of these questions and more. If you have further questions or needs, please don’t hesitate to contact Chelle Law’s dental contract lawyer today.
What is a Dental Independent Contractor Agreement?
An independent contractor agreement is a formal legal agreement between an employer and an individual who will contract with that employer. Note that this agreement does NOT establish the new worker as an employee, which is an important distinction with these agreements. An IC will also likely not be provided any professional benefits.
The purpose of having a worker sign an independent contractor agreement instead of a formal contract is to create a working relationship between the employer (the dental office) and the contractor (the worker) that does NOT bestow the rights or responsibilities of employment on the contractor. In layman’s terms, the contractor is permitted to have other clients/jobs and can split their time between various dental offices if they choose to do so.
Tax Deductions for Dentists
Dentists, like any other business owners, are eligible for various tax deductions that can help reduce their taxable income and overall tax liability. These deductions encompass a wide range of business-related expenses, such as the cost of dental equipment and supplies, office rent, utilities, and insurance premiums. Additionally, dentists can deduct expenses related to continuing education, professional association memberships, and advertising or marketing costs. Employee wages, benefits, and payroll taxes are also deductible. For self-employed dentists, the deduction of self-employed health insurance premiums and contributions to retirement plans are available options. It’s essential for dentists to maintain accurate records and documentation to support their deductions and consult with a tax professional for guidance on optimizing tax savings while adhering to the applicable tax laws and regulations.
How Are These Employment Agreements Structured?
The contractor agrees to a certain rate of pay and to meet basic standards of decorum in the office, but they are not chained down to a specific office if they don’t want to be.
On the other hand, they are also not granted some of the privileges that they would receive if they did have a formal employment agreement with this office. Primarily, they are not entitled to employment benefits such as health insurance. This is a major trade-off for the worker, and it is something that they should ponder very carefully. They will have increased flexibility to take on multiple roles as they choose, but they will also have to consider that they may lack some of the stability that comes with holding a single job with benefits.
Does an Employee Benefit from Independent Contractor Agreements?
Yes and no. Workers can benefit from independent contractor agreements if they are highly flexible individuals willing to work for multiple places simultaneously to cobble together an income. However, they suffer if they don’t have this flexibility.
Younger workers who don’t have children or other commitments must attend to stand to gain the most from independent contractor agreements. Often, these younger workers are familiar with the use of independent contractor agreements anyway, as they have grown up with the concept being used by multiple companies.
A few things to consider about independent contractor agreements include:
- Tax is NOT Withheld – Employers are NOT required to withhold taxes on the wages that they pay to their independent contractors. These workers are classified differently for tax purposes and are expected to keep up with their withholding on their own. Thus, anyone classified as an independent contractor must understand that they are responsible for taking care of their own tax burden. That is important to know before getting a big tax bill come April.
- Independent Contractors may Work Elsewhere – Those who are independent contractors have the right and the flexibility to work elsewhere at the same time if they wish to do so. Employers can’t make them sign a non-compete clause because they are not employees of any particular office. One can think of them as free agents who get to work for whomever they please.
- They Don’t Receive Guaranteed Hours – Employees of a dental office (or any office for that matter) can reliably count on receiving a schedule and a certain amount of hours each week that they can count on. However, this is not the case for independent contractors. They do not receive those same promises, and they may have to scramble to come up with the hours that they need in a given period to make their money.
Do Employers Come Out Well With Independent Contractor Agreements?
Employers are increasingly leaning on independent contractors to staff their offices because these agreements take many obligations off their shoulders. Avoiding paying benefits and providing rock-solid stability to a given worker frees them up to fill the gaps in work that they need to have done without too much commitment.
Some companies are basing their entire workforce on the independent contractor model. DoorDash, the food delivery service, is a great example of this. Instead of recruiting full-time drivers as employees, the company hires millions of independent contractors to get the work done. The job is a fulfillment job in which the driver picks up food orders and delivers them to their intended destination. The driver is paid a small sum for the service that they have provided, and the company keeps its customers happy. At the same time, drivers for this service are more than welcome to drive as much or as little as they want, and they can also drive for competing services if they wish to do so.
Independent contractors best handle the need to fulfill certain workloads when it comes to dental offices. They draw up an independent contractor dentist contract because they need extra help and assistance in the office during particular times of the year. When business picks up dramatically, it is nice to have extra sets of hands around to help with the extra workload.
Can a Dentist Really be an Independent Contractor Forever?
Courts have ruled that dentists can be classified as independent contractors indefinitely if those are the terms that they agree to. There is no expectation that a particular dental office will be required to hire them full-time.
Much of the public thinks that independent contractors are only those who work on the lower end of the wage scale, but that is just not the case. Those are the IC jobs we tend to hear about the most in the news, but there are plenty of dentists who are working on an independent contractor basis as well these days. They may choose to add flexibility to their life or feel they have no choice as the industry continues to move in that direction.
Reach Out to Dental Associate Contract Lawyers
Either way, if they sign an independent contractor dentist contract, it will be upheld in the courts. Those concerned about the agreement they have signed or an agreement the employer presented to them should reach out to a dental contract lawyer today. For more information on the rapidly changing nature of the dental profession, please contact us with your questions.
Other Blogs of Interest
Dentist Independent Contractor Tax Deductions
What tax deductions can dentists take when they are independent contractors? If you are an independent contractor or they offered you an independent contractor opportunity, at the end of the year, you’ll receive 1099. It means they will take no taxes out of the compensation the employer is providing you. You will not get a W2 and then be responsible for paying those taxes either quarterly or at the end of the year. If you are considering being an independent contractor and haven’t before, what are some things you need to consider? And then what are the possible tax advantages of doing that? First, I’m not a tax attorney but an employment contract attorney.
Talk to an Accountant
So, I’m going to give you kind of the bare-bones knowledge that I have based on drafting and reviewing independent contractor agreements for the last couple of decades. But I would suggest if you are thinking of beginning as a first-time independent contractor, you should talk to an accountant. I’m not sure a tax attorney is necessary. Then, you would set up an LLC, a bank account, and run everything through that. But they can walk you through the tax advantages for setting that up. As I said before, if you are a 1099 independent contractor, you would essentially think of yourself as your own little corporation. So, you’d set up a limited liability company/corporation, and you would get your own federal tax ID number. You would set up your bank account, then you’d run all the compensation through that.
All the business expenses would go out of that as well. You would be able to deduct those things at the end of the year. I’m going to go through a list of things you can remove briefly, and then we’ll talk about why an independent contractor arrangement might not make the most sense.
What You Can Deduct
First, you can deduct mileage, health insurance premiums, home office deductions, work supplies, travel, car expenses, and cell phones. In this case, be either business or malpractice insurance, and you can depreciate the assets. You can deduct all the things that would go into working as a dentist in that situation. Now, if you’re coming into the practice to work a few times a week, they will pay you as an independent contractor. You’re not going to be able to deduct the supplies they give you, or if the practice somehow decides to pay for your annual malpractice premiums, you couldn’t do that either. But there are a whole bunch of things you can do and some creative ways of making it worthwhile.
When Does Being 1099 Make More Sense
Now, you’re not going to get all the ancillary benefits that an average employee would like health, vision, dental, disability life retirement. They will not pay for your dental license, DEA registration, or continuing education. You won’t get any paid time off. You’re not going to get any of that as an independent contractor. But as an independent contractor, it should be easy in, easy out. You can work as little or as much as you want. And you are essentially or should be, in charge of your schedule. There are situations where being an independent contractor would make no sense. Then there are probably other situations where being an employee wouldn’t make a lot of sense either.
Tax Credits and Deductions
It’s situationally dependent, so you must weigh if you have to pay for these things. Although I can ultimately most likely dig into most of them, you’re not going to be able to quickly get all the insurance if your only work is as an independent contractor, the health insurance is tough to get. Disability is not tough to get but expensive. Retirement, like those things, is not easy to set up. And I know that some dentists are like, I don’t want to deal with that. I want to be an employee. I want them to set everything up and opt into it. I don’t want to have to deal with all of this stuff on my own. And that’s great. But suppose you are an independent contractor who pays for all those things. In that case, they should pay you a little higher than if you are an employee because the employer doesn’t have to pay employment tax.
They don’t have to pay for any of the things that I went through: the licensing, the continuing education, the paid time off, all of that they’re spared from doing. So, it would make sense if they’re free from all those business expenses. That would at least pass on in some percentage to the dentist. Those are the tax deductions a dentist can take when they’re independent contractors. There are a bunch of factors that go into whether it makes sense or not. But hopefully, that was a little bit of information you may not have had before.
Dentist Independent Contractor vs Employee | Dental Employees vs Independent Contractors
What are the differences between an employee and an independent contractor as a dentist? First, if you are an employee, and this is the most common way of having an employment relationship with the dental practice, you’ll receive a W2 so the employer will withhold taxes from your compensation. You’ll usually receive your payment weekly or biweekly, and when you file your tax returns at the end of the year, you don’t have to worry about paying all the taxes because they’ve already been withheld. The practice will also cover your dental license, DEA registration, and malpractice premiums. If you have a claims-made policy, they may pay for your tail. Then they’ll offer health, vision, dental, disability, life, and retirement, they’ll usually pay for your continuing education, and you’ll get paid time off.
Dentistry Employment Designation
So, the dentist will get all of the great ancillary benefits that come with being an employee if they have signed an employment agreement. Now, if the employers ask them, or maybe they have the option of being an independent contractor, they will not receive W2 at the end of the year. The employer will not withhold taxes from their compensation, and they’ll get a 1099 at the end of the year. Then, the dentist will be responsible for paying all the taxes the employer should have withheld. And they could do that either quarterly or at the end of the year. They will also not receive any of the benefits that I listed before. So, they will not get their license and DEA paid for. They will have none of the health, vision, dental, disability, life, or retirement.
They won’t get paid time off; they’ll have to pay for their own CE. They will be responsible for paying for all of that stuff themselves. Now, if you are a smart dentist and you are going to work as an independent contractor, then you need to meet with an accountant, and you need to set up an LLC, get an EIN, and set up a bank account. And then you can run all the compensation through that and deduct most of those things as business expenses. For the most part, all the stuff I just listed can then be deducted. Now, what’s the ultimate difference? Well, if you’re working as an independent contractor and have set up an LLC and you must get all those things yourself, you have to be responsible for finding all those things. So, you must get health, insurance, vision, dental, disability, and life and set up a retirement plan. You’re going to have to do all that yourself.
In Dental Practice, Who Does Independent Contract Employment?
And then you’ll pay for all your DEA, license, and CE, and you’ll get no paid time off either. For some dentists, after doing a math equation, they can come out ahead as an independent contractor and make sense of them. They have no problem doing all those things. Others loathe having to worry about those things on their own. They want to work as an employee and have the employer deal with all that stuff. And then ultimately work normally.
For a dentist, just a regular nine to five and maybe a little after-hours emergency call on the weekends.
But for the most part, it’s much simpler to work as an employee versus an independent contractor. In what situations does it make sense to be an independent contractor? Well, maybe if you’re working part-time, so if you’re only working for a practice for a day or two a week or even shorter than that and it’s maybe up to the dentist when they work and how much they work, in that scenario, it probably makes sense to be an independent contractor. If you’re working a nine to five job and at the same practice every day, you’re working with the same staff. They’re paying for all or at least some of the things, but they want you to be an independent contractor. They’re usually just doing that to avoid having to pay employment taxes.
Employees vs. Independent Contractors
That’s the reality; you’re not an independent contractor in that situation. You’re probably an employee. The IRS lists or at least releases a 20-factor test to determine whether someone is an employee versus an independent contractor. I would suggest Googling that and looking at it. And if you’re concerned, they’re asking me to be an independent contractor, but I’m not entirely sure. Just go through the list and see if it applies to you. With how many factors, like okay, I’m this and/or that. And then maybe discuss with the employer. I don’t feel comfortable moving forward as an independent contractor. I prefer to be an employee. And then you can decide if you want to stay with them or if they’re willing to offer you an employment agreement.
It just depends upon the situation. Most of the time, as I said before, nine times out of 10, a dentist is going to be an employee, not an independent contractor, but there are certain times where it would just make sense financially to be an independent contractor.
Consultation with Chelle Law
Coming into a new organization with a favorable contract can put the medical professional in a positive financial situation for years to come. Before you sign the most important contract of your life, turn to Chelle Law for assistance.
When dental contracts are reviewed by an experienced lawyer, you will find great financial benefits which end up outweighing the cost of the contract’s review. If you are in need of legal assistance with a dental contract review schedule a review with Chelle Law today!
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