Locum Tax Tips: 5 Helpful Tax Deductions for Physicians
Transitioning from a permanent staff position to locum tenens work offers incredible freedom. You gain control over your schedule, the ability to travel, and the opportunity to experience different clinical environments. However, this career shift also brings a significant change in how you handle your taxes.
Most locum tenens jobs classify physicians as independent contractors rather than W-2 employees. While this means you are responsible for paying your own taxes (including quarterly estimated payments to the IRS), it also opens the door to a variety of deductions that can significantly lower your taxable income.
Navigating the tax code can be complex, but understanding your eligibility for specific write-offs is the key to maximizing your earnings. Here are five helpful tax deductions every locum tenens physician should know about.
1. Tax-Deferred Retirement Plans
One of the most powerful advantages of being an independent contractor is the ability to save aggressively for retirement. Because you are essentially your own employer, you have access to plans that often allow for higher contribution limits than traditional employer-sponsored 401(k)s.
- SEP-IRA: You can generally contribute up to 20% of your net self-employment income to a Simplified Employee Pension (SEP) IRA. The maximum deduction is often capped around $50,000, with an additional "catch-up" contribution allowed for those over age 50.
- Solo 401(k): If your income is under certain thresholds (often around $250,000), a Solo 401(k) might allow you to contribute even more than the 20% limit of a SEP-IRA.
Consulting with a financial planner can help you decide which vehicle is best for your long-term goals.
2. Rural Care Tax Credits
There is a high demand for healthcare providers in rural communities across the United States. To attract talent, many states offer attractive tax incentives for physicians willing to practice in these underserved areas.
If you accept physician jobs in specific rural zones, you may qualify for state income tax credits. For example:
- New Mexico: Offers credits ranging from $3,000 to $5,000.
- Oregon: Features a scaled program offering credits between $3,000 and $5,000 depending on how rural the work location is.
Before accepting an assignment, check if the state offers incentives for the specific location you are considering.
3. Tax Incentives for Primary Care Preceptors
Are you passionate about teaching the next generation of doctors? You might be able to lower your tax bill while doing so. Some states have introduced tax incentives for physicians who serve as preceptors to help train medical students and residents in primary care settings.
States that have offered such programs include:
- Maryland
- Colorado
- Georgia
These states have offered tax credits (often around $1,000) for qualifying physicians. If mentoring is part of your professional life, it is worth investigating if your state rewards this service.
4. Deductions for Charitable Expenses
Giving back is a core value for many in the medical profession. Fortunately, the IRS allows deductions for charitable contributions, but it goes beyond just writing a check.
If you donate your time or money to a qualified charitable cause, keep track of the following:
- Monetary donations: Direct financial contributions are generally deductible.
- Mileage: You can deduct the miles driven to and from your charity of choice.
- Associated expenses: Out-of-pocket costs directly associated with donating your time (such as uniforms or supplies) may also be deductible.
5. Medical Business Expenses
As an independent contractor, you are running a business. This means that "ordinary and necessary" costs associated with keeping that business running are generally tax-deductible. This category is broad and can offer substantial savings if you keep meticulous records.
Common deductible business expenses for locum physicians include:
- Licensing and Fees: State medical licensing fees, DEA registration, and board exam fees.
- Continuing Medical Education (CME): Costs for conferences, courses, and materials needed to maintain your credentials.
- Equipment and Supplies: Stethoscopes, scrubs, pagers, computers, and office supplies used for work.
- Travel and Lodging: If your locum tenens jobs take you away from your tax home, you may be able to deduct travel costs (airfare, mileage) and lodging.
Maximize Your Locum Tenens Career
Taking advantage of these deductions can help you retain more of the income you work hard to earn. However, tax laws are subject to change and can vary greatly depending on your specific situation and state of residence. It is highly recommended that you consult a tax professional who specializes in medical personnel before filing your return.
If you are ready to explore the flexibility and financial rewards of locum tenens work, AMN Healthcare can connect you with physician job opportunities nationwide.
