Keep More of Your Earnings with Our 2025 Tax Guide for Locum Tenens Providers

Understanding Tax Classification: 1099 vs. W-2

Your tax classification determines your financial responsibilities and opportunities for deductions. Many locum tenens providers work as 1099 independent contractors, W-2 employees, or a combination. Here’s a side-by-side comparison to clarify the differences:

Key Takeaway: If you’re a 1099 contractor, you shoulder more financial responsibilities but have broader opportunities for deductions. W-2 employees enjoy simplified tax filing but fewer write-offs.

Stay Organized: Recordkeeping Best Practices

Accurate and thorough recordkeeping is the cornerstone of effective tax preparation. Whether you’re an independent contractor or a W-2 employee, maintaining well-organized records ensures compliance, reduces errors and highlights deductions.

Essential Records Checklist

• Income Statements: Collect all 1099 and W-2 forms summarizing your earnings.
• Receipts: Save receipts for deductible expenses such as travel, lodging, meals, and professional development.
• Mileage Logs: Track work-related travel, including dates, distances, and purposes.
• Invoices and Payments: Maintain records of payments from agencies or facilities.
• Bank Statements: Use them to cross-check income and expenses.

Tips for Simplified Recordkeeping

• Use digital tools like accounting software or mobile apps to track expenses and store receipts.
• Establish separate bank accounts for professional and personal transactions to streamline bookkeeping. Commingling personal and business funds may result in losing your beneficial business status, which can result in tax deductions being denied as far back as three years.
• Conduct monthly reviews to ensure records are up-to-date and estimated taxes are accounted for.

Maximize Savings: Tax Deductions for Locum Tenens Providers

Tax deductions are a powerful way to reduce your taxable income. Knowing what qualifies can significantly lower your tax liability.

Deductions for 1099 Contractors

As a self-employed professional, you can deduct numerous business expenses, including:

1. Travel Expenses: Airfare, lodging, meals, and work-related mileage.
2. Home Office: A portion of your rent, utilities, and internet, if used exclusively for work.
3. Continuing Education: Certification fees, workshops, and conferences.
4. Professional Fees: Licensing costs, legal fees, and membership dues.
5. Technology & Equipment: Computers, tablets, and software used exclusively for your practice.
6. Uniforms: Workwear like scrubs or lab coats.
7. Retirement: Depending on the type of LLC set up for the 1099 Income, a Locums professional may qualify for pre-tax deductions as high as $350,000.
8. Insurance: Medical malpractice insurance payments, if not reimbursed, and general liability insurance payments.  Also, depending on the type of business entity setup, you may qualify to deduct your health insurance premium payments and HSA contributions.
9. State and Local Taxes: Depending on the state, you can deduct state income taxes at the business entity level rather than personally. The current cap is $10,000 for property and state income taxes combined.
10. Miscellaneous: Unique expenses related to your Locums activities such as scribes, supplies, dues, and subscriptions.

Deductions for W-2 Employees

While deduction opportunities are limited for employees, there are still options:

1. Retirement Contributions: Maximize pre-tax contributions to 401(k) or 403(b) plans, which are currently limited to $23,500 (or $30,500 if you are over 50).
2. Health Accounts: Contribute to Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs).
3. Professional Dues: Union or association membership fees.
4. State and Local Taxes: Deduct property, income, or sales taxes, capped at $10,000 annually.

Multi-State Tax Filing for Doctors

As a locum tenens provider, you may work in multiple states, requiring you to file tax returns where income was earned in each state. This surprises many locum professionals, especially those with no state income tax, such as Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Here’s what you need to know:

• Filing Requirements: You’ll typically need to file a nonresident state tax return for any state where you worked, even temporarily, unless the state has no income tax (e.g., Texas or Florida) or a reciprocity agreement. Some states, like New York City, have county and city requirements.
• Income Allocation: Divide your income based on where you earned it. Keep detailed records, including work schedules and payment statements, to ensure accurate reporting.
• Tax Credits: To avoid double taxation, your resident state may offer a tax credit for income taxes paid to other states.
• Stay Organized: Multi-state filing can be complex, so it’s critical to maintain meticulous records and consult with a CPA experienced in locum tenens tax preparation.

A CPA can help you navigate multi-state tax rules, ensuring compliance while minimizing your overall tax burden.

Proactive Tax Planning for 2025

Planning ahead can help you minimize future tax liabilities and avoid surprises.

For 1099 Contractors

• Quarterly Tax Payments: Ensure on-time payments to avoid penalties. The next due date is January 15, 2025.
• Retirement Savings: Contribute to Solo 401(k)s or SEP IRAs to reduce taxable income.
• Income Forecasting: Work with a CPA to estimate earnings and align with tax strategies.
• Payroll Strategies: Adjust your payroll based on your desired tax strategies, retirement, and benefits combinations. If your family helps with the activities, add them to the payroll to maximize pre-tax benefits further.
• State Nexus Review: Keep an eye on your activities in each state.  Once you get close to the threshold for tax filing purposes, consider accepting additional assignments if you prefer not to file within the designated state. 

For W-2 Employees

• Adjust Withholdings: Use the IRS Withholding Estimator to ensure accurate withholdings.
• Maximize Pre-Tax Contributions: Take full advantage of 401(k)s, HSAs, and FSAs to reduce taxable income.
• Review Employer Benefits: Check for tuition reimbursement or other tax-saving programs.

How a CPA Specializing in Locum Tenens Can Help

Navigating the complexities of tax preparation as a healthcare provider is challenging. Partnering with a CPA who understands the nuances of locum tenens work ensures:

• Compliance: Avoid penalties and meet all tax obligations.
• Maximized Deductions: Identify industry-specific deductions you might miss.
• Simplified Planning: Develop a clear, actionable tax strategy.
• State Nexus Review: Review state guidelines for filing requirements and withholdings

At The Doctor’s CPA, we specialize in helping locum tenens providers like you manage their unique financial needs. From quarterly tax payments to year-round planning, we provide the expertise you need to succeed.

Take Control of Your Taxes Today

Taxes don’t have to be overwhelming. By understanding your tax classification, keeping meticulous records, and leveraging available deductions, you can confidently approach tax season. Add the expertise of a CPA, and you’ll maximize your earnings while minimizing stress.

Ready to simplify your tax preparation? Contact The Doctor’s CPA today to schedule a consultation and discover how tailored financial strategies can help you achieve long-term success.