To recap our last blog, I wrote about a lot of interesting things related to travel nursing and compensation. More of it was based on the financial implications of it and why that high pay rate may come at a bit more of a cost than you may be used to as a W-2 wage earner and in context, this is under the assumption you are paid as a 1099-NEC (non-employee compensation) rather than a W-2, so if you get a W-2, this info is really aimed at you, but nevertheless, is a great resource for entrepreneurs everywhere.
First off, its important to state that this is not meant to be tax advice, and if you find yourself in the situation of accepting a contract nursing assignment (or any contract role for that matter) and don’t quite know what that means, do yourself a favor and ask for guidance from your tax preparer or CPA. You really need to be aware of these differences or you might find a large amount of money due at tax time.
Shifting from the drawbacks of a 1099-NEC relationship, my hope with this blog is to continue the conversation and focus more on the business benefits of being a 1099 contractor and what that means for you within your ability to benefit from the tax laws regarding deductions and business expenses, and also how to reduce your taxable burden come tax time.
What are the benefits of a 1099 over a W-2 wage earner?
For one, the drawback of having taxes taken out is removed, and you get to decide what to do with your own money. Yes, you will have to pay taxes on it either way, but you also get to expand your pool of potential business-related deductions (aka write offs) to reduce your tax burden. Assuming you are an individual rather than a corporation, your business earnings will likely be reported on an IRS Schedule C form, which is where your business revenue and expenses flow on to your personal form 1040 for annual income tax. The easiest way to think of this is that if you spend it all on your business, you don’t pay taxes since there was never any money left to tax.
What are some of the most common business expenses for travel nurses?
- Mileage reimbursement: For 2021, you can deduct 56 cents per mile for vehicles used for business related travel. You will need to keep track of these miles with a pad of paper at the least or more commonly using a app like mileIQ or Driversnote. (I personally use the Driversnote app and have the autotrack feature with their GPS beacon so it automatically tracks on my phone and gives reports as well as knows which vehicle I’m in. Time saver).
- Automotive expenses: You can either claim the standard mileage reimbursement rate as above or you can claim the actual vehicle-related expenses, such as fuel, tire rotation, oil changes, etc. Taking this instead of the mileage reimbursement means a bit more paperwork to keep track of for your expenses and a the end of the year for either option, you have to document which portion of the vehicle’s use percentage wise was for business vs personal use.
- Business meals: This changed from being 50% previously to being 100% deductible last year for all business-related meals.
- Certification and licenses: New state licenses, certifications, and costs for these are all deductible.
- Insurance: Health insurance is a personal expense, but professional liability insurance for nurses is a business expense.
- Office expenses: Do you chart from home? Do you have a home office? Do you have internet and phone bills that are specifically for your business? That counts too.
- Lodging for travel: Did you have to pay for your lodging used for your travel assignment if it is not otherwise paid for and your assignment is a certain distance from home. I’m answering this one nebulously since you will need to talk to your CPA on this. You don’t get to write off your house if you’re a local travel nurse, however if you’re a person who works from a home office, that’s definitely different and IS deductible based on the square footage of the office. Many travel companies pay for lodging for you, and yes, they write it off :).
- Continuing education courses: Courses to maintain or expand your licensure, skillset, and certification required for you to do the job are most certainly deductible if your business is to provide services with these skills. This is easiest for you to justify when there is a continuing education credit offered for your specialty such as ANCC or a state board of nursing, but this is not mandatory.
- Tax preparation and accountancy: Having a great accountant is worth as much as having a great babysitter. (All my fellow parents out there know this). You want to have an expert work with you on this stuff and you definitely can write off the cost since it is part of the bookkeeping and tax preparation costs.
This is NOT an exhaustive list, but these are some of the things that as a W-2 wage earner, you would have to fight hard to find a way to pay pre-tax, but as a 1099 sole proprietor in the eyes of the IRS, you get to directly reduce your taxable burden from your revenue and when you’re done subtracting all the appropriate items, you get a much smaller figure on which to be taxed.
This is how massive companies like Amazon show minimal tax burden despite record growth and revenue. They spend it on their own company and infrastructure rather than taking it as a payout, and despite all the arguments for or against capitalism, this is the tax law and you are not in charge of making the law, but you are obligated to follow it, but it also means you can benefit from it when appropriate.
If you want a more exhaustive list, just look at the form Schedule C at the IRS website and you can see all sorts of fun things that are eligible to deduct, when applicable.
How do you keep track of it all?
- Keep your receipts digitally: I love to use the GeniusScan app for receipts. It gives you scanner-quality images from the convenience of your phone and allows you to upload it to a storage tool like Google Drive or a financial tool like Expensify directly. The full app is only a few bucks and worth its weight in gold.
- Bookkeeping: I use Bench.co and they are amazing (and yes, tax deductible). Located in Vancouver, BC, they service businesses large or small with personalized bookkeeping solutions. This may be a bit more than you need for smaller expenses, and a cost savings may be the use of a single-entry accountancy tool like QuickBooks. With Quick Books, link your bank account and you are good to go. The learning curve for that is a bit more, but once you figure it out, you’re really in control of your books. You will need to put time into this so account for a few hours a month to keep these all ironed out.
- Bank account: You absolutely need to make your life easy with this. Get a separate bank account for any business expense. Even if your business of getting paid from a hospital as a 1099 is not a true EIN business entity and is paid to your social security number, just having a separate account to treat as a business activity account will drastically simplify your life if you get audited or if you want to keep it very simple when bookkeeping comes around. You absolutely do NOT want to mingle your personal and business activities or else you pierce the corporate veil. This does not exist for non-business structures, but it is VERY important if you are a LLC or a S/C corp.
This is quite a bit of a rapid rundown of the benefits of what you can do to make the most of your 1099 relationship, but the bottom line is you absolutely need to have a qualified accountant run you through this. I am NOT a tax expert and every year this changes, which is why when I go to see my tax preparer, I chuckle at the thousands of pages he has to read to be up to date each year to maximize my financial position.
We are seeing a new world of 1099 entrepreneurs with COVID-19 and we at Skills On Point want you to be ready for the world of business ownership whether you knew you were one or not. Hopefully this is helpful and if you want more on this, feel free to let me know!