Are Dentists Usually Self Employed? | Is a 1099 Dentist Considered Self-Employed?
Are dentists usually self-employed? What kind of general percentage of dentists who are self-employed and have their practices? First, normally, when a dentist comes out of training, they’ll start as a dental associate somewhere and then get some experience. Build up some cash, and then at some point, decide to move out on their own and be self-employed. However, as you probably know, corporate dental conglomerates continue to gobble up all the smaller dental-owned practices if you’re in the dental industry. And so, there is a shrinking percentage of dentists who own their practice. The rate of dentists in the United States that are self-employed, meaning they own their practice, is around 16%.
So, not a lot. Like as a child, you would think, oh, I go to the doctor whoever, and you assume they would own their practice, but it’s rare. Now, someone could work for a practice, establish a patient base, and be there for a long time. However, it could be for a corporate-owned practice. And so they would not be considered self-employed. Self-employed would mean you own the business outright. It is your business. You are responsible for everything, and many dentists are not interested in doing that. Others are entrepreneurial in spirit and enjoy the freedom to do what they want and build their business how they want. Now, is it more lucrative if you are self-employed? It would depend upon the business acumen of the dentist.
Dentists as Business People
As I said before, some dentists are competent business people. They can make a killing as a self-employed dentist, I guess, more than they could if they’re working with a corporate dental-owned practice. Others are not great business people. They probably don’t make as much money as they could if they were just employees at a corporate dental practice. And this goes for any industry. It goes for lawyers, physicians, and chiropractors. Some people have that entrepreneurial bug and are interested in creating something.
In contrast, others just don’t want to deal with the hassle and prefer to work as an employee elsewhere. There are some things to think about if you are self-employed or maybe even thinking about being self-employed as a dentist. If you start a business on your own, you will not just be a dentist but a Jack of all trades.
Responsibilities of Being a Dental Practice Owner
And I could say this from experience owning my law firm. Depending on how big you are, you will make the hiring and firing decisions. You will be the one to secure all of the insurances, and malpractice, do the payroll and call a plumber when things break. There’s a lot of responsibility, but there’s also such an enormous amount of freedom in being able to do something in the exact way that you want to do it. That is extraordinarily satisfying. And once again, I’m saying this from self-experience.
Suppose you’re not interested in starting your practice. In that case, there are many opportunities to work as an employee or an independent contractor. I get people just coming out of school or training who ask, alright, well, can I go out and start my practice right away? It would make more sense to work as a 1099 independent contractor first to get some experience.
I would say that’s probably a bad idea. There’s just so much you have to learn about making a practice efficient and the patient flow. And these are things that you should not learn on the fly. You should get some experience as an employee to see, and they may do it terribly, but at least, I’m not going to do it that way. I’m going to do it opposite because I’ve learned the way they’re doing it does not work, or maybe the compensation. I don’t want to pay my employees a daily rate or a base income. I want them to have a little skin in the game. And so, I’m going to offer some net collections-based compensation to any dental associates I hire. That way will increase productivity, and they can ultimately make more.
Paying Close Attention to the Non-Compete
There are just a ton of things you can learn from the beginning in practice and then move on after that. The one thing you need to consider is if you start in an area as an employee, it’s very likely you will have a non-compete. And that non-compete will prohibit you from working for a period within a specific area. And suppose you’re married to an area, but your non-compete will knock you out of that area. That might not be a job you want to pursue if you consider establishing your practice and being self-employed. Now, you could always leave for a little bit and come back.
But for the most part, that wouldn’t make much sense if you established your practice. So, that’s a little bit about how many dentists are self-employed, around 16%.
Other Blogs of Interest
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- Should a Dentist Choose Claims Made or Occurrence Insurance?: Dental Insurance Is Either Claims Made or Occurrence
What Is a 1099 Dentist? | Dental Practice Independent Contractor Designation for a Dentist
What is a 1099 dentist? There are two ways you can work for a dental practice. Either as an employee or you would receive a W2 and taxes are withheld, or you’d be an independent contractor. Then you would receive 1099 at the end of the year, and no taxes are withheld from it. You would receive all the compensation that you agreed to. Then the dentist would be responsible for paying taxes quarterly or at the end of the year. If you are an independent contractor, what are some of the benefits and disadvantages of that? Well, the advantages are that you can deduct almost all the business financial expenses including taxes that would go into working as a dentist.
Benefits Coverage for Employees
So, you can depreciate assets, licensure, and DEA registration, mileage, car expenses, cell phone, supplies, malpractice insurance. Normally, a dentist would create an LLC. They’d create a bank account, get an EIN, and then run everything through that. All the expenses would go through that. All the compensation would go through that. And then you take draws when you want to use the money for yourself. There are situations where it doesn’t make sense to be an independent contractor. As an employee, you get all of the ancillary benefits that come with it, like health, vision, dental, disability, life, and retirement. They’ll pay for your dental license, DEA registration, continuing education, and malpractice premium. Maybe if you have a claims-made policy, they’ll also pay for your tail insurance.
They’ll pay for many things, making it relatively easy for the dentist to opt into those things. Whereas if you’re an independent contractor and you aren’t an employee anywhere and need those things, you will be responsible for securing them for yourself as well as paying for taxes. And then some dentists simply don’t want to do that or are just uninterested in spending all the time creating the LLC and running it as a business. Some people love to have the freedom of being independent contractors. However, many others find it completely cumbersome and not worth their time. Is one better than another? It would depend upon the situation.
Usual Role of an Independent Contractor
Ideally, an independent contractor would likely work part-time or at least at their own pace. That means they could work as much or as little as they want if they worked it out with the dental practice. As an employee, most dentists are paid a straight base salary, or they would receive a percentage of their net-collections. Daily rates are very common for dental associates as well. And then all the taxes are deductible from that. And then, as I said before, they would pay for everything necessary to be a dentist. Suppose you have a complete schedule, and let’s say you’re working nine to five, Monday through Friday. In that case, you may have a few call responsibilities for emergency after-hour situations. It wouldn’t make much sense to be an independent contractor in that scenario.
20-Factor IRS Test
Suppose the employer is asking you to do that. I think it’s most likely that they just don’t want to pay employment tax. And they’re kind of passing that on to the dentist. So, suppose you have no control over your schedule. In that case, if you have no control over the supplies, the staff, or anything, you’re likely an employee or a quasi-employee. The IRS releases a 20-factor test that kind of goes through. Suppose this is part of the employment relationship. In that case, you’re probably an employee, or if this is part of it, you’re probably an independent contractor. If you Google like a 20-factor IRS test, you can come up and look and say, alright, well, does this fit what they’re asking me to do? And then, am I an independent contractor in this situation?
The government can. Though this would rarely happen, they could come back and say, look, they were not an independent contractor. They were employees. And then they could go after back taxes against the employer.
Choosing Between the Agreements
I don’t have an opinion on what is better if you choose between one or the other. You rarely would. Usually, the dental practice is going to dictate what type of employment relationship exists. I think it is situationally dependent. Suppose you’re thinking of working as an independent contractor and want to maximize tax deductions. I would implore you to go meet with an accountant and ask for advice to set everything up properly. I don’t think a tax attorney is necessary for this.
So, meet with an accountant. Tell them what you need to do, and set up the LLC. Then, get everything together to maximize your tax deductions and compensation.
Dentist Independent Contractor Tax Deductions | Tax Deductible Considerations for Dental Independent Contractors
What deductibles can be taken by dentists’ taxes when they are independent contractors? Suppose you are an independent contractor or received an independent contractor opportunity. Then, at the end of the year, you’ll receive 1099, and no taxes are deductible from the employer’s provided compensation. You’ll not get a W2, and then you will be responsible for paying those taxes 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 deductions advantages of doing that? First, I’m not a tax attorney. I’m an employment contract attorney.
Tax Deduction Expenses For Dental Professionals
So, I’ll 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 ask for advice from an accountant. I’m not sure a tax attorney is necessary. And then, you would set up an LLC, a bank account, and then 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. Then you would get your own federal tax ID number, set up your bank account, and run all the compensation through that.
All the business financial expenses would go out of that as well. And then 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 deduct briefly, and then we’ll talk about why an independent contractor arrangement might not make the most sense. 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.
Suppose you’re just coming into the practice to work a few times a week, and they’ll pay you as an independent contractor. You won’t 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.
Making an Independent Contractor Agreement Worthwhile
But there are a whole bunch of things you can do and some creative ways of making it worthwhile. Now, you’re not going to get all the ancillary benefits that a normal 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. And 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 I have to pay for these things. However, I can ultimately most likely dig into most of them. Still, you won’t be able to easily get all the insurance if your only work is as an independent contractor. 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 everything.
In that case, you should probably get compensation at a little higher level than if you are an employee because the employer doesn’t have to pay employment tax.
They don’t have to pay for anything I went through: the licensing, the continuing education, the paid time off. Those are their exemptions. So, it would make sense if they were free from all those business financial expenses. That would at least pass on in some percentage to the dentist. Those are the deductions on the taxes that a dentist can take when they’re an independent contractor. 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.
W2 Employee vs 1099 Self Employed Dentist
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, taxes will be withheld from your compensation. You’ll usually receive weekly or biweekly payments. When you file your tax returns at the end of the year, you don’t have to worry about paying all the taxes. That’s because taxes have 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 insurance. 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.
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, suppose they’ve received an offer, or maybe they have the option of being an independent contractor. In that case, they will not receive W2 at the end of the year, it will not withhold taxes from their compensation, and they’ll get 1099 at the end of the year. And then, the dentist will be responsible for paying all the taxes they should have withheld. 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.
Maximizing Tax Deductions
They won’t get paid time off; they’ll have to pay for their CE. They will be responsible for paying for all of that stuff themselves. Suppose you are a smart dentist and will work as an independent contractor. In that case, you need to meet with an accountant and 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 financial expenses. For the most part, all the stuff I just listed can then be deducted from your tax.
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.
Tax Deductible Considerations
And then you’ll pay for all your DEA, license, and CE, and then you’ll get no paid time off. 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 normal nine to five and maybe a little after-hours emergency call on the weekends.
What Situations Qualify You as an Employee?
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? Suppose you’re just working part-time. You’re only working for a practice for a day or two a week or even shorter. Then, it’s up to the dentist when they work and how much they work. In that scenario, it probably makes sense to be an independent contractor. Suppose you’re working a nine-to-five job and are at the same practice every day. You’re working with the same staff, and they’re paying for all or at least some things. Still, they want you to be an independent contractor. They’re usually just doing that to avoid paying employment taxes.
That’s the reality, and 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 kind of concerned, they’re asking me to be an independent contractor, but I’m not entirely certain; go through the list and see if it applies to you or not, with how many factors I’m this and or that. And then maybe discuss with the employer, well, 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.
Consider the Situation
It just depends upon the situation. Most of the time, as I said before, 9 times out of 10, a dentist is going to be an employee, not an independent contractor. Still, there are certain times when it would just make sense financially to be an independent contractor.
Is a W2 or 1099 Better for a Dentist?
Is a W2 or 1099 better for a dentist or dental associate? I would say it depends—just explaining the difference between the two. If you have an independent contractor agreement, then you’ll be a 1099 employee. It means you’ll receive a 1099 at the end of the year from the employer, with whom I guess you had a relationship. Then a W2 is just a salaried employee. And so, you’ll have an employment agreement if you’re a W2. Independent contractor agreement if you’re 1099. The difference between the two is in the employment agreement. The dentist will benefit from benefits, meaning literal benefits like health, vision, dental, life, disability, retirement, and the usual things you get in a typical job.
They’ll also likely pay for your licensing board, DEA registration, continuing education, and maybe associations in societies. They’re going to support the dentist with those ancillary benefits financially. And then they’ll have compensation, straight base income. Many dental associates have daily rates, or perhaps it could be a hybrid of a base income, plus the dental associate will get net-collections. They’ll often have a smaller one. You can almost call it a draw, or the dentist could get paid a certain monthly amount. Then they’ll get a percentage of any services collected based upon what they did. Generally, in that scenario, it always depends. Still, if it’s a hybrid, it’ll usually be somewhere between 18 to 25% percent of the net-collections over a certain amount. That’s not uncommon.
Advantages of Working as an Employee in Terms of Benefits
That’s what an employment agreement and kind of the W2 relationship are for dentists. In an independent contractor agreement, you’re generally not an employee and will not receive such employment benefits. They may pay for your malpractice insurance, but unlikely they’re not going to pay for your licensing. DEA, they’re not going to provide any actual benefits. So, all of that is going to be at the dentist. And then, as far as taxes go, they will take federal or state taxes from whatever you’re getting paid. An independent contractor agreement’s theoretical benefit is that it should be accessible in and out. The notice requirements should be much less than in an employment agreement. There shouldn’t be a lot of strings attached. Hopefully, there’s no non-compete, but I don’t find that’s the case.
Typically, I find in most independent contractor agreements for a dentist. There is a non-compete. Usually, the without-cause termination notice requirement is like the employment agreement. It may make sense if it’s a part-time job where you’re just filling in randomly. That certainly would make sense to have an independent contractor agreement because the employer will not want to provide all benefits of someone’s working once every two weeks. In that scenario, a 1099 independent contractor agreement relationship makes total sense. If this is like a full-time gig for a dentist, I don’t think the independent contractor relationship makes sense to them. Now, for expense purposes wise, in this scenario, the dentist should create an LLC. Then other things go along with that. They can deduct all those financial expenses for the year the employer spent.
Why Do Employers Typically Require an Independent Contractor Agreement?
Most employers require an independent contractor agreement, even if the dentist is full-time. It’s because they want to avoid paying employment tax, and that’s the truth. The IRS has a 20-factor test to determine if an employee or an independent contractor is an employee or an independent contractor. And so, if you run through the factors of that test, you could Google that. I mean, it’s everything else. Most of the time, in scenarios where the dentist is working full time. But they must sign an independent contractor agreement that they fail the test. They’re almost always employees. Some things go into that: does the employer dictate where and when the independent contractor will work? Do they provide them with supplies, support, or an office?
I mean, if a dentist was working for somebody, they’re going to be provided. Now, it also gets into the benefits, the comp relationship, and everything else. For the most part, an employment agreement is a way to go if you’re full-time. An independent contractor agreement will make sense if it’s a hit-or-miss part-time fill-in. But if this is the only job you work five days a week, an independent contractor agreement, in my opinion, doesn’t make a lot of sense. You’re going to lose out on all those benefits. And usually, you’ll get all the downsides of the restrictive covenants too. So, a non-solicit, non-compete maybe depends upon what type of liability insurance you have. If you must purchase tail insurance, that’s on you as well—just a lot of things to consider.
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