Freedom! It is one of the main reasons CRNAs cite for becoming independent contractors. They want the freedom to achieve a better work/life balance, opportunity for growth and travel, plus scheduling flexibility.
In the healthcare industry, these are rare opportunities! Many CRNAs contact us to discuss their options for becoming 1099 contractors, and why, at CRNA Financial Planning®, we have been counseling both W-2 and freelance CRNAs for over twenty years. Our founder and president Jeremy Stanley’s wife is even a 1099 CRNA, so we understand first-hand and can attest to the myriad of benefits a CRNA can gain by becoming a 1099 contractor:
As noted in the 2020 AANA Annual Compensation and Benefits Survey, the median annual salary for a W-2 employee CRNA with one work arrangement was $194,000. The 1099 CRNA, however, made $234,000 a year - a gain of $40,000. And the median income for the upper 10% of full-time self-employed CRNAs was $310,000 a year!
That extra income does not come without strings. Freelance CRNAs are responsible for their own health insurance, disability insurance, malpractice insurance and more. Without a strategy, those income gains can quickly decrease over the long term, making it imperative that CRNAs going 1099 understand the demands and opportunities of their financial well-being.
On top of a greater potential income, there are expanded tax reducing opportunities for 1099 CRNAs as well. Owning and running your own business allow a greater range of tax deductions than being a salaried worker. These tax reductions can make a significant difference in overall income, especially for CRNAs who travel.
Many CRNAs are unaware of the expanded retirement savings opportunities for independent contractors. Whereas W-2 employees are limited to employer sponsored plans (and possibly traditional or Roth IRAs), retirement plans for 1099 contractors, including an Individual 401(k) and/or a SEP IRA, have significantly higher contributions limits. A CRNA can stash away a much greater sum towards retirement savings as an independent contractor than they can as a salaried CRNA.
For example, W-2 CRNAs age 50 and up are limited to a maximum annual contribution of $26,000 in a traditional employer sponsored 401(k) or 403(b). The same CRNA in a freelance role can contribute up to $64,500 per year into a solo 401(k) plan. CRNAs younger than 50 are also affected, with a maximum annual contribution of $19,500 for W-2 employees in a traditional employer sponsored 401(k) or 403(b) versus $58,000 for 1099 contractors into a solo 401(k) plan. No matter the age of the CRNA, that equals a difference of $38,500 each year towards retirement.
And speaking of travel, being a freelancer is an opportunity for CRNAs to truly customize their life! They can design their own schedule, building in flexibility and the working hours they desire. Being a locum CRNA is one of the few ways to enjoy a balanced lifestyle that you can create for yourself. In other words, it provides freedom in a way that few professionals attain.
It’s also a great fit for those CRNAs who like control. (Over the past couple decades, we haven’t met too many CRNAs who don’t like to be in control…) Being independent means you have power over your schedule, your income, your billing, your taxes, and more. If you have always wanted to be the boss of your own business, being a locum CRNA is a great way to do just that.
Freelance CRNAs are not tied down to one location. With hospitals and medical facilities throughout the United States in need of their skills, locum CRNAs are able to answer the call of service anywhere in the nation. Ever had the itch to travel? Independent contractors can work while they are on the road. Financially speaking, this is great news, as travel can be a way to reduce tax burden.
But Is It Right For Me?
The opportunity for freedom that comes with being a 1099 contractor can be an exciting endeavor, but it does demand organization, tax preparation, and, let’s face it, a potential mountain of administrative paperwork! The logistics of running your own business may seem overwhelming to a new locum CRNA, and without careful planning, that opportunity for freedom can quickly become a burden. To help CRNAs improve their 1099 experience, we offer these tips for optimizing your locum CRNA business:
- Organization, Organization, Organization!
Certified Registered Nurse Anesthetists/Anesthesiologists have an incredibly challenging job. Ensuring a patient is safe and pain-free in complex medical situations can be rewarding, but also stressful.
Keeping records of expenses like association membership dues, mileage, and office supplies can seem unimportant compared to your patients’ well-being. But giving due diligence to all of the ephemera associated with your 1099 business can mean the difference between minor daily housekeeping, or being engulfed in a backlog of bookkeeping that often leads to missed tax minimization opportunities and future headaches.
That’s why we recommend adopting a fail-safe system of tracking your spending on a daily basis. Locum CRNAs often don’t realize that expenses such as scrubs, marketing, insurance, and car maintenance may be deductible. It is important to keep all of your receipts for tax reporting. The key here is to keep the actual receipts, as the IRS does not accept bank statements as proof.
And it doesn’t have to be as outdated as keeping a shoebox full of paper slips! Being a locum CRNA means that you are often on the move. Since the IRS can accept scanned images of your receipts, you can make your business more efficient by going digital. Filing your documents in a cloud-based program can be a simple and effective way to relieve the stress associated with running a freelance business.
- Know Your Business
Keep your 1099 CRNA work life separate from your personal life. This is not only good business sense, it will tremendously simplify your workload in the long run. Open a checking account and credit card solely for your business expenses.
With tax laws constantly changing, what qualifies as tax deductible today may not be deductible tomorrow. The new Tax Cuts and Jobs Act is one such example, where employees are no longer allowed to deduct expenses related to their jobs, including items like gas, cell phone usage, and insurance.
Locum 1099 CRNAs, however, are not limited to these statutes. They have the opportunity to deduct some of those original expenses and potentially can even avoid being taxed 20% of their income by utilizing the new 20% pass through deduction. To take advantage of this requires strategy and having your business properly set up.
Many locums are not aware of the wide range of tax benefits they may be privy to. In any contract that lasts a year or less, 1099 CRNAs have the chance of deducting such expenses as: rent, hotel costs, meals, mileage, bookkeeping, cell phone, advertising, bank charges, member dues, education/training, insurance premiums, laundry, legal fees, parking fees, software, office expenses, travel, even the cost of scrubs. All of these expenses add up, leading to greater deductions at tax time, a valuable strategy for maximizing your CRNA income.
- Keep A Schedule
As a W-2 employee, your taxable income and amounts taken out for taxes appeared on your W-2 form at the end of every year, without you having to calculate them. But when a firm pays more than $600 for services from an independent contractor, that income must be reported to the IRS.
What many 1099 CRNAs don’t realize is that they must pay taxes on their income as they earn it. Paying your quarterly estimated income taxes will be a new part of running your business successfully.
It doesn’t sound so difficult—keeping track of paying estimated income tax only happens four times a year. But the reality is a late payment can result in penalties and fines from the IRS. Keeping a schedule to help you stay on top of your quarterly estimated tax payments, and paying adequately to avoid underpayment, is imperative in avoiding penalties in the future. Not to mention providing peace of mind!
- The S-Corp Edge
As a 1099 CRNA, you are the boss of your own freelance business. In effect, you have become an entrepreneur! And as an entrepreneur, it’s important to know the building blocks of creating a successful business. How you structure your 1099 CRNA business will have far-reaching consequences, whether it is a sole proprietorship, a limited liability corporation (LLC), or an S corporation (S-corp).
An S-corp may offer several advantages over other business structures when it comes to taxation. In this structure, a business owner is called a shareholder, and the business owner is recognized by the IRS as an employee of the business. What this means is that the business owner must pay themselves a salary through the corporation. The S-corp pays their payroll taxes, which can in turn be deducted as a business expense. Income tax is paid through its owners tax returns based on their percentage of ownership. Moreover, any remaining profits have a lower tax rate than regular income. An S-corp may also allow 1099 CRNAs to avoid a higher tax level that other self-employed contractors have to pay for Medicare and Social Security.
A CRNA may structure their company as an S-corp serving as the sole owner, with their business income, tax deductions, and losses passing through to the owner, as opposed to being taxed at a corporate level - a potentially smart move for maximizing financial security in the future.
- See to Your Nest Egg
Prepare for the future! Professionals across all walks of life should do as much as they can to save for retirement. This is not news. But unlike professionals with a pension, as a locum CRNA, it is now on your shoulders to manage your retirement savings. As mentioned earlier, locum CRNAs have access to a greater range of retirement plans than a CRNA employee. Being a 1099 CRNA is a great way to get a head start on retirement, or catch up if you are not on target.
This is especially important for medical professionals who likely had to spend the start of their careers paying off school loans instead of investing in their future. It’s never too late to start saving for retirement, but it’s also never too early.
Having a retirement plan in place is one of the best things you can do to achieve financial well-being, and 1099 CRNAs can actually minimize their tax burden by contributing to their retirement account. This can potentially put them in a lower tax bracket. In fact, maximally funding your nest egg is one of the best ways to offset your tax liability.
Saving for retirement in addition to utilizing tax deductions will help position you for success in your financial future. Unfortunately for many locum CRNAs, a strategy for tax deductions is often outside of their knowledge base, which leads us to our final tip;
- Hire a Professional
Becoming a business owner can be a gratifying solution to achieving a better work/life balance, but be prepared for hurdles! With complex state and federal laws constantly in flux, mistakes are easily and often made. The best way to reduce your margin of error is to hire a professional who understands CRNAs.
A qualified financial and accounting team can check your records and make sure that your business paperwork is in order. They can also relieve you of the burden of knowing what the IRS will and will not allow as a business expense. This is not always straightforward as out-of-pocket expenses are tricky. They can offer individualized tax advice with strategic financial and tax planning, and will know whether you can deduct expenses associated with housing, meals, or malpractice premiums.
An advisor or planner can assist you in setting up your business with a tax reducing strategy that can alleviate unnecessary financial burden. They can make sure you are paying an adequate amount toward your estimated quarterly taxes, and they can spot deductibles that you may not be aware of. All of these factors can go far in helping you run a more stress-free locum business.
A Rewarding Opportunity
Without the right strategy, becoming a locum 1099 CRNA can be a costly choice to make. It’s imperative that CRNAs understand the intricacies of working as a W-2 versus a 1099 contractor to maximize your wealth. But with preparation and help from a qualified financial and accounting team, running your own locum 1099 CRNA business can be the crowning achievement of your career! Independent contractors enjoy benefits that few traditional employees have. Freedom and scheduling flexibility, combined with financial peace of mind, is for many locum CRNAs worth the extra paperwork filing.
Jeremy Stanley, EA, CFP®, AIF and the team at CRNA Financial Planning® are with you during your financial journey towards security. With over two decades of experience, we advise W-2 CRNAs and locum CRNAs across the United States in all of their business, tax, financial and investment needs. We take pride in guiding CRNAs and their families through the complexities of investing and financial planning with a strong commitment to providing peace of mind and financial confidence.
Contact us at CRNAfinancialplanning.com to see how we can help you achieve a bright financial future!
Investment advice offered through Private Advisor Group, a registered investment advisor.
This information is not intended to be a substitute for individualized tax advice. Please consult your tax advisor regarding your specific situation.