Dentist Independent Contractor Tax Deductions: Tax Deductible Considerations for Dental Independent Contractors
What are the tax deductions that dentists can take when they are independent contractors? If you are an independent contractor or have been presented with independent contractor opportunity, at the end of the year you’ll receive a 1099 and no taxes will be taken out of the compensation that you’re being provided by the employer. You will not get a W2 and then you will be responsible to pay for those taxes either quarterly or at the end of the year. If you are thinking about being an independent contractor and haven’t before, what are some things you need to think about? And then what are the possible tax 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’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. And then you would set up an LLC, a bank account and then run everything through that. But they can kind of walk you through what the tax advantages are as far as setting that up. Now, if you are a 1099 independent contractor, as I said before, you would essentially think of yourself as your own little corporation. So, you’d set up a limited liability company/corporation, and then you would get your own federal tax ID number, you would set up your own bank account, and then you’d run all the compensation through that.
All the business expenses would go out of that as well. And then you would be able, at the end of the year, to deduct those things. I’m just going to briefly go through a list of things that you can deduct, and then we’ll kind of 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 insurance or malpractice insurance, and then you can depreciate the assets as well. All the things that would kind of go into working as a dentist in that situation, you can deduct. Now, if you’re just coming into a practice to work a few times a week, and they’re going to pay you as an independent contractor, obviously, you’re not going to be able to deduct the supplies that they give you, or if the practice somehow decides to pay for your annual malpractice premiums, couldn’t do that either.
But there are a whole bunch of things that you can do and there are 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’re not going to 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 kind of easy in, easy out. Meaning, that you can work as little or as much as you want. And you are essentially, or at least should be, in charge of your own 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 kind of situationally dependent, so you must weigh, alright, well, If I have to pay for all of these things, although I can ultimately most likely dig to most of them, but you’re not going to be able to easily get all the insurance if your only work is an independent contractor, the health insurance is tough to get. Disability is not tough to get but expensive, retirement, like those things are not easy to set up. And I know that some dentists are just like, I don’t want to deal with that. I just want to be an employee. I want them to set everything up and then I just opt into it. I don’t want to have to deal with all of this stuff on my own. And that’s great. But if you are an independent contractor and you are paying for all those things, then you should ultimately probably be compensated 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 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 that if they’re going to be freed from all of those business expenses, that would at least pass on in some percentage to the dentist. Those are the tax deductions 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 that you may have not had before.
Dental Independent Contractors vs Employees
What are the differences between being an employee versus being 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 and so taxes will be withheld from your compensation. You’ll usually be paid weekly or biweekly, and at the end of the year when you file your tax returns, 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 and 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, all of the great ancillary benefits that come with being an employee, the dentist is going to get if they have signed an employment agreement. Now, if they’re being asked or maybe they have the option of being an independent contractor, they will not receive W2 at the end of the year, taxes will not be withheld from their compensation, and they’ll get a 1099 at the end of the year. And then the dentist will be responsible for paying for all of those taxes that should have been 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 then deduct most of those things as business expenses. All the stuff I just listed, for the most part, can then be deducted. Now, what’s the ultimate difference? Well, one, if you’re working as an independent contractor and have set up an LLC and you must get all of those things yourself, you have to be responsible to find all those things. So, you have to go 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’re going to pay for all of your DEA, license, CE, and then you’ll get no paid time off either. For some dentists, after kind of doing a math equation, they can come out ahead as an independent contractor and just make sense for them. They have no problem doing all those things. For others, they just loathe having to worry about all of those things on their own. They just want to work as an employee and have the employer deal with all that stuff. And then ultimately just work normal. For a dentist, just a normal nine to five, and on the weekends, maybe a little after-hours emergency call.
But for the most part, it’s much simpler to work as an employee versus an independent contractor. Now, in what situations does it make sense to be an independent contractor? Well, maybe if you’re just 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 you’re at the same practice every day, and you’re working with the same staff and they’re paying for all, or at least maybe 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.
That’s the reality. You’re not actually 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, well, they’re asking me to be an independent contractor, but I’m not entirely certain, just go through the list and see if it applies to you or not, with how many factors, okay, well, I’m this and or that. And then maybe have a discussion with the employer, well, I don’t really feel comfortable moving forward as an independent contractor, I’d prefer to be an employee. And then you can kind of decide if you want to stay with them, or if they’re willing to offer you an employment agreement as well.
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, but there are certain times where it would just make sense financially to be an independent contractor.
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