1099 Tax Strategy

Locum Tenens Tax Strategies: Your 1099 Advantage

Turn Self-Employment Into Tax Savings

Locum tenens physicians have unique tax opportunities. Learn S-Corp strategies, retirement plan maximization, and expense optimization to save $50K+ annually.

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$20K-$50K+

Annual SE Tax Savings with S-Corp

$69K

Max Solo 401(k) Contribution (2024)

15.3%

Self-Employment Tax Rate

20%

Potential QBI Deduction

Quick Answer

S-Corporation election can save $20K-$50K+ annually in self-employment taxes for locum physicians earning $200K+
Solo 401(k) allows up to $69K in annual contributions - potentially more than W-2 employer plans
Business expenses (travel, CME, licensing, equipment) directly reduce taxable income - document everything
Per diem for travel assignments can provide $50K+ in tax-free income annually
Set a reasonable S-Corp salary ($150K-$250K typically) to avoid IRS scrutiny while maximizing SE tax savings

The Opportunity

Why This Matters for Locum Physicians

S-Corporation Election: Save $20K-$50K+ Annually

As a 1099 contractor, you pay 15.3% self-employment tax on all earnings. By forming an S-Corp and paying yourself a reasonable salary, you eliminate SE tax on distributions above salary. On $400K income with $200K salary, you save $30K+ in SE taxes annually.

Business Expense Deductions

Locum physicians can deduct legitimate business expenses: travel, lodging, meals (50%), licensing fees, CME, malpractice insurance, health insurance premiums, home office, professional subscriptions, and equipment. These deductions directly reduce taxable income.

Retirement Plan Maximization

Self-employed physicians can establish Solo 401(k) or SEP-IRA with much higher contribution limits than employee plans. A Solo 401(k) allows up to $69,000 (2024) in total contributions - potentially $200K+ in tax-deferred savings annually if you have multiple income sources.

Section 199A QBI Deduction

The Qualified Business Income deduction allows eligible self-employed physicians to deduct up to 20% of qualified business income. While phase-outs apply to high earners, strategic income management and business structure can preserve some or all of this valuable deduction.

Implementation

Proven Strategies

S-Corporation Tax Optimization

Form an S-Corporation (or elect S-Corp status for your LLC) to separate business income into salary (subject to SE tax) and distributions (not subject to SE tax). Pay yourself a reasonable salary (typically 40-60% of net income for physicians), then take remaining profits as distributions.

Best for: Locum physicians earning $200K+ annually who can justify reasonable salary and handle S-Corp administrative requirements.

Example:

$400K locum income. Sole proprietor: $400K x 15.3% SE tax = $61K. S-Corp with $200K salary: $200K x 15.3% = $30.6K SE tax. Savings: $30.4K annually. Over 10 years = $300K+ saved.

Aggressive Retirement Funding Strategy

Establish a Solo 401(k) for maximum flexibility: $23K employee contribution + 25% of net self-employment income as employer contribution, up to $69K total. If married, a spousal Solo 401(k) can double household contributions. Add a cash balance pension plan for $100K-$200K+ additional tax-deferred savings.

Best for: High-earning locum physicians who want to maximize tax-deferred retirement savings and can commit to multi-year funding.

Example:

Solo 401(k): $69K. Spousal 401(k): $69K. Cash Balance Plan: $150K. Total tax-deferred: $288K annually. At 37% bracket = $106K tax savings per year.

Travel and Per Diem Optimization

Locum physicians away from home can deduct travel expenses and receive tax-free per diem for lodging and meals. Establish your tax home strategically. Document all travel meticulously. Per diem rates vary by location - some cities allow $300+/day tax-free.

Best for: Locum physicians who travel frequently and maintain a legitimate tax home.

Example:

Work 200 days away from tax home. Per diem at $250/day = $50K tax-free income. Additional deductible travel expenses: $15K. Total tax benefit at 37% bracket: $24K.

Avoid These Pitfalls

Common Mistakes

Not Forming an S-Corp

Remaining a sole proprietor costs $20K-$50K+ annually in unnecessary self-employment taxes. The administrative burden of an S-Corp is minimal compared to the tax savings. If you earn $200K+ as 1099, S-Corp election is almost always beneficial.

Unreasonable Salary Setting

Setting S-Corp salary too low invites IRS scrutiny. The IRS requires reasonable compensation for services. For physicians, this typically means $150K-$250K depending on specialty and hours. Too low triggers audits and penalties; too high wastes SE tax savings.

Poor Expense Documentation

Failing to document and track business expenses leaves money on the table and creates audit risk. Use accounting software, keep receipts, and document the business purpose of each expense. A $50K deduction at 37% = $18.5K in taxes saved.

Questions

Common Questions

Here are the most common questions we receive about this topic.

Ask Your Question

Generally when your net self-employment income exceeds $80K-$100K annually. Below this threshold, the SE tax savings may not justify the administrative costs (payroll, tax filings, state fees). Above $150K-$200K, S-Corp election becomes increasingly valuable.

IRS requires reasonable compensation for services performed. For physicians, this typically ranges from $150K-$300K depending on specialty, hours worked, and geographic location. Research comparable W-2 physician salaries in your specialty as documentation.

Yes - you have MORE options than W-2 employees. Solo 401(k), SEP-IRA, SIMPLE IRA, and defined benefit plans are all available. Solo 401(k) offers the most flexibility with up to $69K annual contributions (2024). You can also combine multiple plans for even higher limits.

Your tax home is your regular place of business, not necessarily where you live. Maintain a home base where you return regularly, have some patients or work, and intend to stay. If you have no regular place of business, your tax home is where you regularly live.

Common deductions include: travel (airfare, mileage, lodging), meals (50% deductible), licensing and credentialing fees, CME and education, malpractice insurance, health insurance premiums, professional memberships, equipment, home office, phone and internet, and professional services (accounting, legal).

Ready to Optimize Your Locum Taxes?

Every locum physician situation is unique. Let us create a personalized tax strategy that maximizes your 1099 advantages.

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