Veterinarian Independent Contractor Tax Deductions
What are the tax deductions a veterinary associate can make if they are classified as an independent contractor? First, if you are an employee of a veterinary practice, you’ll receive W2 at the end of the year, and taxes will be withheld from your regularly scheduled paychecks. Whereas if you’re an independent contractor, you’ll receive a 1099 at the end of the year, and no taxes will be withheld from your compensation, you will be responsible for paying for all those taxes. What are the benefits of being an independent contractor? Well, it makes the most sense to be an independent contractor when you’re working part-time for an employer. For instance, maybe you’re in emergency veterinary care and you’re only going to work maybe one or two weekends a month.
In that situation, it doesn’t really make sense to be an employee. It makes more sense to be an independent contractor. As an employee, you will get all the ancillary benefits. The veterinary practice should pay for your licensing, DEA registration, continuing education reimbursement, signing bonus, and moving expenses if you’re moving from out of state. And then they’re also going to offer health, vision, dental, disability, and life retirement. The employer will cover all those things. When you are an independent contractor, you will get none of those things covered. You are responsible to pay for all of that yourself. Now, does that mean you are at a disadvantage compensation-wise? Well, no, if you do the, I guess, correct things, and the correct things would be if you’re going to work as an independent contractor, you need to create an LLC.
You need to meet with an accountant to kind of go over the best way to maximize your tax deductions. You need to get an EIN from the IRS, you need to create a bank account, you need to run all the compensation expenses through that bank account so you can track them appropriately. Those are the things you need to do to make sure that you’re setting yourself up to be able to take the tax deductions when you’re ultimately filing taxes at the end of the year. What are those things you can do? Alright, well, all the things I just discussed can be used as tax deductions. So, your license, DEA, CE, any kind of business expenses, your home office, if you’re using that to prepare in some way, although that’d be tough as vet, travel, you could depreciate other assets if you have them for the business, malpractice insurance, licensing board, and defense insurance, all those things can be used as tax deductions when you’re an independent contractor.
Now, a couple of considerations, one, if you’re a 1099 independent contractor, the employer is not going to have to pay any employment tax on you. So, they are usually saving around 10 to 12% of your total compensation. They also do not have to spend any amount of money on the benefits, which can be costly at times. If you’re working as an independent contractor for somebody, you should expect to make a little bit more because the employer is saving on all of those things. If you’re making the exact same amount as somebody who’s working as an employee for a practice, you’re missing out. You should have at least some leverage and point out to them all the things that they’re saving on for you to have some kind of increase. Now, how much? It depends.
I mean, probably somewhere between 5% to 15% of a bump over someone else who’s working as an employee would make financial sense for the employer. But whether they’re willing to do that or not, I can’t tell you, but everything is in negotiation. If you’re given an agreement, those are certain things you can push for because the employer is saving when classifying you as an independent contractor. I know I mentioned this, but I’m just going to drive it home. You should absolutely meet with an accountant prior to signing any kind of independent contractor agreement. You need to have the business structures set up properly in advance and know exactly what you can and can’t deduct at the end of the year, which you should run through the bank account. It makes no sense to just sign an agreement and start without having any of those things in place. You could miss out on detecting a lot of valuable business expenses.
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