Change is inevitable. Taxes are complicated. Taken together, these two truths make for a complex situation many of us would rather avoid. And while delving into changes to the tax law may seem like a chore, it might be worthwhile for locum tenens physicians and advance practice providers who are treated as independent contractors to take a closer look at their respective tax profile. Here is an overview of how the changes may impact locum tenens professionals.
The New Tax Law
The new Tax Cuts and Jobs Act (TCJA) affects income earned as of January 1, 2018. In certain cases, the law will provide a tax benefit to businesses that are considered pass-through entities – those that do not have to pay tax at the business level, but instead, at the individual level. Pass-through entities include sole proprietorships, limited liability companies, partnerships and S corporations. Because most locum tenens are not operated through C corporations, they are considered pass-through entities. It should be noted that the Alternative Minimum Tax was eliminated for C corporations but remains for individuals.
Pass-Through Income Deduction
The new law allows for up to 20 percent of qualified pass-through income to be deducted from the calculation of taxable income. For example, a small business owner that has $100,000 in income could deduct in upwards of $20,000 and pay federal tax on $80,000. It is, however, important to realize that for “professional service” business owners including lawyers, doctors, and consultants, there are phase out income limits set at $157,000 for single filers and $315,000 for joint filers. This means that independent clinical contractors cannot take the full 20 percent deduction once their income reaches these levels. The deduction begins to phase out, and there is no deduction for those earning more than $207,500 (single) and $415,000 (married).
Adjustments to Tax Brackets
The adjusted tax brackets may also affect locum tenens providers. While there are still seven tax brackets, the ranges have been adjusted for 2018:
Changes in Exemptions and Deductions
For 2018, the personal exemption has been eliminated. However, standard deductions have been increased to:
- Single - $12,000 (was $6,500)
- Married filing jointly - $24,000 (was $13,000)
- Married filing separately - $12,000 (was $6,500)
- Head of Household - $18,000 (was $9,350)
Invest in Help from a Tax Professional
Considering the sweeping changes to the tax law, 2018 is the ideal time to enlist the services of a tax professional – especially one with experience preparing taxes for locum tenens providers. So this year, turn the care of your taxes over to an accountant so that you can focus on what you do best – providing patient care.
Ready for your next adventure? Get started today.
* This communication is for informational purposes only. MDA, Inc. does not provide tax, legal, or accounting advice. Tax law is subject to continual change. Consult a financial professional for tax advice.