Dental Practice Financial Expert, Shawna Aho, from STAC Bizness Solutions Weighs In.
In today’s post I wanted to address a common question that we often receive from dental practitioners: Is it better to work as an independent contractor or as an employee of the practice?
While the answer to this question is not always straight-forward, there are some pros and cons that you’ll want to consider before making a decision that best suits your needs. Before we cover these pros and cons, let’s back up a bit and cover the major differences between an independent contractor and an employee of the practice.
Working as an Independent Contractor
As an Independent Contractor Dentist (also known as a 1099 Dentist) you will work under the terms of an Independent Contractor Agreement that outlines both your responsibilities and the compensation you will receive for your services. Taxes will not be withheld from your compensation, and you will not receive a Form W2 at the end of the year. This mean YOU are responsible for paying your own taxes based on 1099 wages that are reported to the IRS by your employer.
In addition, independent contractors, because they are… well, INDEPENDENT do not receive benefits from their employer such as health, vision, dental, disability, or life insurance or any retirement benefits. Also, don’t look for your employer to cover other items like paid time off, continuing education expenses, licensing expenses, or travel expenses. All these items are the responsibility of the independent contractor.
Working as an Employee
When working as an employee of a dental practice, the employment relationship is more traditional. Your employer will withhold taxes from your earnings, and you will receive a Form W2 at the end of the year. The amount of taxes you’ve had withheld during the year (as well as your total income and other factors) will determine the amount of your tax refund or the amount of taxes owed to the IRS.
The dental practice will also cover many of your expenses such as your dental license, DEA registration, and malpractice premiums. In addition, you can expect the standard benefits that often include health, vision, dental, disability, life, and retirement benefits.
So Which Employment Arrangement is Better?
As I mentioned to start this post, the answer is not always clear and much depends on your own preferences. The advantages to becoming an employee are fairly clear – from having your work-related expenses covered, to enjoying paid time off, to securing a host of benefits at group rates. Generally speaking, as an employee you have very little of the “business side” of things to worry about.
By contrast, as an individual contractor you are responsible for setting up and maintaining your business entity (typically an PLLC), and tracking and paying for all your business-related expenses like licenses, registrations, continuing education, and travel-expenses. In addition, you’ll need to take matters into your own hands to source malpractice insurance as well as health and life-related insurance coverage for your family. Despite the extra work, some people just love to have the freedom they feel as an independent contractor – often having the freedom to dictate the hours they choose to work.
Another reason some prefer the life of an independent contractor is the freedom to write off their expenses. Remember, all expenses are paid by the individual contractor so it stands to reason that these expenses can be used to lower that individual’s taxable income. Here are just a few examples of what expenses an individual contractor can write off to reduce their taxable income:
- Mileage to and from work
- Medical, dental, vision and life insurance premiums
- Car expenses
- Communication expenses including a cell phone
- Malpractice insurance
- Licensing fees
- Registration fees
- Supplies or equipment you purchase for delivery of patient care
- Continuing education
These are just few examples and, as always, we’d encourage you to always consult your tax advisor to ensure certain deductions are allowed given your specific situation.
Hope you found this helpful!
Have questions about optimizing the financial performance of your dental practices? The team at STAC Bizness Solutions is dedicated to provided top quality bookkeeping, payroll and advisory services to medical professionals within and outside of The Woodlands, TX area. If we can help you in any way, just call us at 844-424-9637.
For a Limited Time, Get Our Free Guide: 7 Key Financial Practices That Separate Thriving, Growing Practices From The Rest.
LET US KNOW WHERE WE SHOULD WE SEND YOUR FREE GUIDE!
7 Key Financial Practices That Separate Thriving, Growing Practices From The Rest.
There’s no denying it. Creating a thriving practice is about much more than practicing medicine!
Topping the list of “other” priorities is your practice’s financial management. In this short guide, the experts at STAC Bizness Solutions outline 7 financial best practices that differentiate struggling practices from those which are highly profitable and experiencing healthy levels of growth.