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by Michael Lodge
The healthcare industry employs a lot of 1099 contractors that go from patient to patient or even from facility to facility. They work on an on call basis or on a patient to patient basis, moving from one place to another to meet with patients, and then filing out forms manually or online with each healthcare provider or facility. It takes a lot of work to run a small business like this so there are deductions you can take on your tax returns.
First lets examine what an independent contractor is. People such as doctors, nurses, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.
So now that you are an independent contractor what can you deduct. As an independent contractor, you can deduct business expenses to help reduce your total tax bill. During the year you are working, you will need to maintain detailed records of your business-related expenses to make it easier to complete your tax return. Some deductions may have limits, based on whether your gross business income is greater or less than your total expenses.
MILEAGE – This is going to be probably your largest tax deduction. Since it will be an important deduction you are going to have to keep logs. Remember the mileage starts at the first patient you are at and going to the next patient. Download a mileage app on your phone so that you can tract your actual mileage. The IRS if you are audited will want to see your mileage log. Documentation is the key to this deduction.
ORDINARY AND NECESSARY EXPENSES – The IRS defines legitimate expenses as those that are ordinary and necessary for your business. An ordinary expense is one that is in line with the nature of your business. Basically, most expenses that you incure in the normal course of doing business can be listed as business deductions. For example, you can deduct the costs of advertising, including web hosting fees for an internet site, as well as educational fees and the costs of subscriptions to newspapers or professional magazine if they relate directly to your business activities.
SUPPLIES – Normal supplies necessary for conducting business are eligible to be deducted as business expenses. As an independent contractor, you will need business cards and possible letterhead, invoice paper, envelopes and postage. If you are in the healthcare profession you may need various medical supplies for your patient visits that are not reimbursed in your contract. You may print promotional materials or contracts for doing business with clients. If you sell a product that product is not considered a regular office supply deduction. You will need to calculate the cost of goods sold in order to write off the expenses of your inventory.
CAPITAL EXPENSES – If you purchase certain office equipment, considered to be business assets rather than supplies, you will need to calculate those items as capital expenses rather than straight business deductions. Equipment and property expenses are depreciated over a certain period of time, depending on the type of expenses involved.
TRAVEL AND VEHICLE EXPENSES – Certain entertainment expenses can be deducted as business expenses, although generally you can only deduct 50% percent of meals and entertainment. When you use your personal car for business travel, you have a choice of deducting a percentage of the actual care expenses or taking the standard mileage rate as a deduction. Deducting a percentage of business use of your car works much like deducting home office expenses. You will calculate the percentage of business use for your car and then you can deduct that percentage of actual expenses, such as insurance, gas, oil, and maintenance costs.
ESTIMATED TAXES – if you see that your income is going to be large and there will be taxes due – make quarterly estimated tax payments. I would also suggest that you put 25% away on each check you get from your clients – save up for tax payments – be prepared and responsible.
IRA – Another way to lower your tax costs is to invest in a IRA or 401K plan that will provide you with a tax deduction and help you save for the future. Just remember if you should withdraw from these programs early you will be taxed on an early withdrawal. So consult your tax accountant before doing so.
If you have any questions about being a 1099 independent contractor, send me an e-mail at: email@example.com and I will try and answer your questions. Just remember that by being an independent contractor you are now operating a