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 and then you would receive a 1099 at the end of the year, and no taxes are withheld from it. You would just receive all the compensation that was agreed to, and 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 you can deduct almost all of the business expenses that would go into working as a dentist.
So, mileage, car expenses, cell phone, supplies, malpractice insurance, you can depreciate assets, licensure, DEA registration, those types of things. Normally, a dentist would create an LLC, they’d create a bank account, they’d get an EIN, and they would then run everything through that. All of the expenses would go through that, all the compensation would go through that. And then you just 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’re going to pay for your dental license, DEA registration, continuing education, and your malpractice premium. Maybe if you have a claims-made policy, they’ll pay for your tail as well.
They’re going to pay for a ton of things and make it relatively easy for the dentist to just opt into those things. Whereas if you’re an independent contractor and you aren’t an employee anywhere and you need those things, you are going to be responsible for securing them for yourself. And then some dentists just simply don’t want to do that or are just uninterested in spending all the time and creating the LLC and running it as a business and that type of thing. For some people, they love it to have the freedom of being an independent contractor. However, there are many others that find it completely cumbersome and not worth their time. Is one better than another? It would depend upon the situation.
Ideally, an independent contractor would likely be working probably part-time or at least at their own pace, meaning, they could work as much as they want, or as little as they want, if they worked it out with the dental practice. As an employee, for most dentists, they’re 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 would be taken out of that. And then as I said before, they would just pay for all of the things necessary to be a dentist. If you have a complete set schedule, and let’s just say, you’re working nine to five, Monday through Friday, maybe you have a little bit of call responsibilities for emergency after-hour situations, in that scenario, it wouldn’t make a lot of sense to be an independent contractor.
If the employer is asking you to do that, in my opinion, 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, if you have no control over your schedule, if you have no control over the supplies, the staff, or any of that kind of thing, you’re likely an employee or a quasi-employee. The IRS releases a 20-factor test that kind of goes through, alright, well, if this is part of the employment relationship, you’re probably an employee, or if this is part of it, you’re probably an independent contractor. If you just Google like a 20 factor IRS test, you can come up and you could just 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?
I mean, the government can, though it’s extremely rare this would happen, but they could come back and say, look, they were not an independent contractor, they were an employee. And then they could go after back taxes against the employer. I don’t really have an opinion on what is better if you have the choice between one or the other, it’s rare you would. Usually, the dental practice is going to dictate what type of employment relationship exists. I think it really is situationally dependent. If you are thinking of working as an independent contractor, I would implore you to go meet with an accountant and just kind of set everything up properly. I don’t think a tax attorney is necessary for this.
So, just meet with an accountant, let them know what you need to do, set up the LLC, and kind of get everything together so you can maximize your tax deductions and compensation ultimately.
Dental Practice Employees Tax Deductions?
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.
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.
IRS Work Deductions
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 kind of 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.
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.
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