1099 tax deductions for 2018

[IMGtoPA]

I just accepted a new position as a 1099 independent contractor for a home-visit practice where I earn about $50/visit. I will be mostly mobile, traveling to private residences, ALF's, nursing homes, etc.

My question is what are some of the things I need to keep track of for the 2018 year? I have researched online and found many things that independent contractors can use for tax deductions, but nothing specific for medical providers and physician assistants, in particular. Some of the obvious ones to me are:

1. Car Mileage - I plan on keeping record of every route I take at work
2. Supplies - things that the practice may not provide for that I would need for work
3. CME - i'm assuming any type of conferences I plan on doing this year

I have a credit card designated for these purchases. Things I am unsure about:

A. Gas for car - I plan on keeping track of when I fill up; does this count?
B. Car payment - one of my cars is paid off, my other one (which I won't be using majority of the time) still has payments on it but my wife drives it. Can I write these payments off as an expense?
C. Meals at work - there will be times where I will be eating on the go; I will have a Medical Assistant and I'm assuming we will be discussing [some] work at our lunch. Can I deduct this as an expense?
D. Licensing/Professional Organizations - Do these payments count towards deductions? What about a DEA license?

Any other things that I have not thought of? I'm new to the 1099 game but I kind of like the idea. Also, my wife is a W2 employee, does that complicate things?

[Boatswain2PA]

1, 2, 3 and D -Yes

C - yes, but tricky so consult a cpa.  Before 2018 half of travel meals were deductible, and you could deduct business entertainment  (meals with your assistant may count there, not sure).  I've read that 2018 law no longer allows for business entertainment deductions.  Again, this is tricky, consult with a CPA.

A & B - no, not if you are claiming mileage.

[Cideous]

Cell phone....

Internet access....

Freeway toll charges.....

 

All things I write off.

[Boatswain2PA]

2 minutes ago, Cideous said:

Cell phone....

Internet access....

Freeway toll charges.....

 

All things I write off.

I do too, same with other home office related expenses, however this could be problematic if audited.  All depends on the overpaid union-protected beancounter who does the audit.

[Boatswain2PA]

Single most important thing is to withhold enough (I do 35%) and s3nd that to Uncle Sam quarterly.

[dchampigny]

36 minutes ago, Boatswain2PA said:

Single most important thing is to withhold enough (I do 35%) and s3nd that to Uncle Sam quarterly.

Is there any rhyme or reason behind this? I too am entering the 1099 world and I was not sure how much I should take out? Does it vary based on total income or 1099 income?

[Boatswain2PA]

1 minute ago, dchampigny said:

Is there any rhyme or reason behind this? I too am entering the 1099 world and I was not sure how much I should take out? Does it vary based on total income or 1099 income?

FEederal income tax rate based on total income, but it's marginal (meaning progressive - pay 10% of income up to X amount, then 20% between X to Y amount, then 30% between Y to Z amount, etc).

Your w-2 employer will withhold some taxes, but usually not enough to offset the higher bracket you will be in with additional income.

In addition, your W-2 employer will not only withhold an additional 7.5% for social security taxes, they also PAY their portion as well (another 7.5%, for total of 15% tax).

As a 1099, YOU have to withhold and pay the full 15%.  The good news is this caps out at around $135,000 so any income above that doesn't pay this.

 

I'm driving now, will try to get accurate numbers up later.

[GetMeOuttaThisMess]

Anything vehicle related as noted comes off your mileage deduction.  You can use EFTPS.com to pay estimated taxes online.  I did it monthly with my paycheck.  You can create a spreadsheet and insert formulas for withholding and FICA (15.3%) and allowances for insurance products to adjust your taxable income.  I did this as well and you can find your withholding tables in IRS Pub. 15 for 2018.

[GetMeOuttaThisMess]

In additional to health and liability insurance, you might wish to consider your long-term disability insurance (especially if you need to replace your income for wife/family).  May be hard to find but make sure it covers your inability to work in your trained capacity only so that you can still be actively employed as a Wal-Mart greeter and still draw on the insurance.  Most present day exclude ANY type of work.

[Cideous]

yea, I forgot.  I pay for a supplemental malpractice policy through CM&F group....I write that off as well.   Like $800/year!  It all adds up.

[ventana]

first

$50 per visit as a 1099 is HUGELY underpaid - you had best go back and look at it again, you are setting yourself up to fail and get paid nothing in doing so

figure about 1.5 visits per hour if you are going super fast, maybe 2/hr in an ALF

in community 1/hr is tough

That puts you at about $40/hour

 

 

mileage - if using your car record miles driven, and pay IRS mileage rate - this covers gas, wear and tear, insurance and everything so you can not use your CC to fill the tank

Meals - only 50% deduction, and "entire company" has to attend to take 100%.  (if I remember correctly) - 
cheaper to just pack a PBJ and drink

unsure on new tax law

 

 

 

overall you are already underpaid and giving you services away.

[Boatswain2PA]

19 hours ago, dchampigny said:

Is there any rhyme or reason behind this? I too am entering the 1099 world and I was not sure how much I should take out? Does it vary based on total income or 1099 income?

Okay, here's some better numbers with the 2018 tax law, although the IRS has not published these yet, look at the tables 1/4 way down the page at (https://www.forbes.com/sites/kellyphillipserb/2017/12/17/what-the-2018-tax-brackets-standard-deduction-amounts-and-more-look-like-under-tax-reform/#646d68b41401).

For married filing jointly, if your taxable income will be $175,000, you will pay 10% of your first $19,050, then 12% of your income between $19,051 and $77,400, then 22% of your income between $77,401 and $165,000, then 24% of your income over $165,000.

One caveat with this and 1099 contractors - there is a 20% DEDUCTION for "certain" "qualified business income", which I THINK will apply to us.  I think this means we get to knock 20% off of our 1099 income before we then refer to the (probable) tax tables linked above.  This deduction is complicated, has a cap, and appears to even limit certain professions like attorneys and physicians (which I think is unconstitutional, but we'll see) from taking this.  But, I THINK it will apply to us.  Want to get really confused?  This is the BEST article I have found that tries to clear the mud with this ENTIRELY NEW section of the tax code (Man I wish we just had a flat tax):  https://www.forbes.com/sites/anthonynitti/2017/12/26/tax-geek-tuesday-making-sense-of-the-new-20-qualified-business-income-deduction/#2a5fe6644fda.   

But back to taxes, you don't just pay federal income tax, you also pay Social Security tax (12.4%) on ALL income up to $128,400, and Medicare tax (2.9%) on ALL income.  This is 15.3% on ALL income up to $128,400, and then 2.9% on everything over that.  

If you receive a W-2, then your employER will WITHHOLD half of this tax from you and send it to Uncle Sam, then they PAY the other half of the tax for you.  So if you and your spouse make $50,000 as a W-2, then you will have $6200 withheld for SS tax, another $6200 paid by your employer, and $725 withheld for CMS tax, and another $725 paid by your employer.

So, if you make $125,000 as a 1099 (on top of your $50,000 as a W-2s), you should get a 20% deduction, bringing your 1099 income down to $100,000.  This, with the $50,000 you made as a W-2, I think you will pay $41,907 in FEDERAL INCOME TAX. 

But wait, there's more!

This is where it gets gray.  You MAY have to pay SS/CMS on the full $125,000.  If so, since SS tax is limited to the first $128,400, and your household income is $175,000, you may pay $12.4% (SS) + 2.9% (CMS) on the first $128,400 ($19,645), and then for the remaining $46,600 you would just pay the 2.9% CMS (another $1351), for a total of of $20,996 in SS/CMS.

Or, if we get the 20% 1099 deduction FIRST, then household income is $150,000 and you may pay $12.4% (SS) + 2.9% (CMS) on the first $128,400 ($19,645), and then for the remaining $21,600 you would pay the 2.9% CMS (another $626) for a total of $20,271 in SS/CMS.

So, with that scenario, you will pay somewhere around $62,178 in federal income, SS and CMS tax.

But wait, there's more!  Your W-2 employER has already PAID some of that.  Without running the numbers here, just look at the W-2's and subtract what's already been both withheld and PAID by your employer.

 

All that makes you want to just have a flat tax, doesn't it.

[Boatswain2PA]

19 hours ago, GetMeOuttaThisMess said:

In additional to health and liability insurance, you might wish to consider your long-term disability insurance (especially if you need to replace your income for wife/family).  May be hard to find but make sure it covers your inability to work in your trained capacity only so that you can still be actively employed as a Wal-Mart greeter and still draw on the insurance.  Most present day exclude ANY type of work.

Regarding tax deductions.  I don't believe health insurance is deductible for 1099 contractors.  With disability insurance my understanding is if the "the business pays for it" (ie: you deduct the premiums), then if you ever receive disability money then it is taxable.  However if you pay the premiums personally then the disability income is tax free.

Unfortunately disability insurance is prohibitively expensive for me as I broke too many things in my previous career.

[sas5814]

I realize the tax code is in flux so this may change but if you are a 1099 employee and send out invoices etc for your services you need a home office. If your home office, which must be for the operation of your business, is 8% of the square footage of your house them 8% of your mortgage, water, electric, trash etc is a tax deduction. You can also convert your office furniture, computer etc to business use and write it off as a business expense.

Your best bet is to get a good accountant. I have been on the wrong side of the IRS and let me promise you...it isn't fun.

[Cideous]

1 hour ago, sas5814 said:

 

Your best bet is to get a good accountant. I have been on the wrong side of the IRS and let me promise you...it isn't fun.

And this line wins the thread.  It's not that hard, but it is very time sensitive and the IRS will nail you if you underestimate your taxes or pay them even slightly late.  Get a good accountant.  Now on that, find a private accountant that works from home, NOT a giant firm.  Those places kill you in price.  We use a semi-retired lady who worked for the big firms for years and now just works out of her home.  So reasonable and so good at what she does.  She's a sweetheart as well!

[Guest Elpatodog]

There is a good article on Comphealth website about 1099 status and tax issues especially about the travel expenses. I thought about trying to do the house calls also but when I crunched the numbers it just didn't make financial sense. I know there is a really good thread on this website about doing house calls I just can't remember where it was located.  After I read the thread and crunched the numbers I realized I would make peanuts. 

[sas5814]

yea housecalls are tough to make money on especially as a PA because there are other people who want to dip their beak. The profit gets diluted really fast and there is drive time and people at home generally take way more time than in an office setting etc etc.

 

The folks I know who have done it successfully simply hired a SP and started their own business.

[majetito]

I worked as a 1099 employee for over 5 years. Make sure you set up a SEP pension plan if your employer is not setting up anything for you.

[pHumphrey]

Working as an individual contractor for 1.5 years so far. The only suggestion is, ensure to keep all your tax records to yourself, regardless of what it is exactly, tax returns or just a one year old w9 - it'll come in use to you later

[sas5814]

 

A caution about making insurances a deduction particularly life. If you claim the  premium as a write off the benefit is taxable. I wouldn't (and based on advice form my accountant didn't).

[VeryOldPA]

I agree tha $50 per visit is a recipe for failure. I did the 1099 thing up until about 15 years ago and when I guit I was charging $100 per hour and seeing 2 to 4 patients per hour.    It is an absolute must that you get yourself a CPA and form a corporation.  Without a corporation most of the deductions mentioned go away

 

patients an hour

[Boatswain2PA]

1 hour ago, VeryOldPA said:

It is an absolute must that you get yourself a CPA and form a corporation.  Without a corporation most of the deductions mentioned go away

Absolutely NOT accurate.  

There are some benefits to incorporation, but also many downsides (you won't get the 20% deduction I mentioned back on Feb 4th). 

I generally think if you make <300K/year then it's not worth incorporating.  

[sas5814]

I have usually formed a LLC so the company could pay me, do my withholding, and I could avoid the self employment tax. The company makes nothing (because it all gets paid to me), and I reduce my tax burden.

But I do agree with a good CPA. Mine was great and gave me a lot of good advice.

[Boatswain2PA]

1 hour ago, sas5814 said:

I have usually formed a LLC so the company could pay me, do my withholding, and I could avoid the self employment tax. The company makes nothing (because it all gets paid to me), and I reduce my tax burden.

But I do agree with a good CPA. Mine was great and gave me a lot of good advice.

Before the 2018 tax changes this made some sense.  Lots more paperwork could save you a little bit in taxes.  You WOULD still have to pay the self employment tax (half would be paid by your C-corp, the other half by you, either way it's all your money.) 

One of the bigger benefits of having an C-corp is the ability to employ your spouse as well if s/he wasn't working outside the home.  This would then open up an additional avenue to put money into a 401K.  The "company" could then match it as well.

However you could also put >2x the max 401K amount into a SEP-IRA which is pre-tax as well.  Downside of a SEP-IRA is you can't do a backdoor ROTH with it.

With the 2018 tax changes I don't think it will make any sense for anyone making <$300K/year to run it as a C-corp as they lose the 20% deduction.

[sas5814]

Well I am now slaving away for the man so I am unplugged from new changes. Work...home...sleep....lather...rinse...repeat. I almost hate to say it but they pay me so well I'd have to think long and hard about being self employed again.