Nurse Practitioner Independent Contractor Tax Deductions
What are the tax deductions you can take if you are an independent contractor as a nurse practitioner? Let’s say you’ve been offered a job as an independent contractor. You might be wondering, alright, well, what are the advantages or disadvantages in a scenario like this? Well, let’s kind of go through them. If you are an independent contractor, at the end of the year, you’re going to receive a 1099 and then no taxes will be withheld from your compensation throughout the year. So, you will be responsible to pay those taxes either quarterly or at the end of the year. Now, a smart nurse practitioner, before starting an independent contractor job, would create an LLC with the state that they’re in.
They would get an EIN from the federal government, and then they would also get a corporate bank account for that LLC. And then all compensation and expenses should be funneled through that bank account because if you are an independent contractor who has created an LLC, you can use all of the costs associated with being an NP as a tax reduction. For instance, malpractice insurance premiums, maybe if it’s a claims-made policy, tail insurance, licensure, board cert, mileage, any home office expenses, or any kind of supplies necessary. I think any of the stuff that you would need to purchase to be an NP for that job are things that you can deduct at the end of the year. Now, the downside of being an independent contractor is you won’t get any of the ancillary benefits of being an employee.
For instance, health, vision, dental, retirement, and life disability. You’re not going to get any of those. They’re not going to pay for your malpractice insurance. You’re not going to get any money for continuing education, no paid time off. If you had the choice between two, I mean, the choice between being an employee versus a nurse practitioner as an independent contractor, you’re going to have to kind of weigh, alright, well, which way will that come out ahead? I mean, if you did get health insurance and vision and dental, those can be expenses as well, but many NPs are just not interested in taking the time to go out and find all of those things. It’s just much easier if you just go and work as an employee, and then you can just opt-in to all of those things. Now, the compensation also needs to be considered. If an employer is treating you as an independent contractor, they’re not paying any of the employment taxes associated with that, usually, it’s around 10% to 12% total of the compensation provided to the employee is paid as employment taxes. Other pages of interest include:
So, they’re saving on that. Additionally, if you’re an independent contractor, as I said before, they’re not going to pay for any of those benefits. So, they’re saving a lot of money on that. You should ask for higher compensation when working as an independent contractor because the employer is going to save a lot of money when they treat you as an independent contractor. Now, many employers will kind of misclassify employees as independent contractors. As I said before, just to get out of having to pay employment taxes. The IRS offers a 20-factor test that kind of determines whether someone is an employee or an independent contractor. I’d suggest looking at that prior to starting a job and maybe assessing it yourself. And then if you do have some concerns about being misclassified, you should approach those with the organization before you sign your employment agreement or independent contractor agreement.
Most jobs that are considered independent contractor jobs are part-time in nature. Maybe you’re going to work after hours, a few days a week, maybe only a couple of Saturdays a month, something like that. In that scenario, it makes sense to be an independent contractor. But if you’re working five days a week for an employer, they’re telling you when to come to work, and they’re telling you who to see, you’re very likely an employee and not an independent contractor. So, those are some tax deductions you can take as an independent contractor NP.
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