Ross Zimmerman
With great control over your career comes great responsibility. That’s the push-pull of relief work — you’re in charge, which means you’re responsible. This is especially true when it comes to taxes: As a relief vet, you file taxes as an independent contractor. That means a full 100% of your relief income goes straight to you, but you’ll have to pay taxes on it later. This also means you’ll have a ton of additional ways to save on your taxes only available to independent contractors.
So how much should you set aside for taxes? Should you file taxes quarterly or annually? And most importantly, how can you cut down your tax bill to earn more — turns out, there’s a lot of ways to do just that!
We recently sat down with Michelle Musacchio, CPA, MT, and cat lover for two free webinars (her cat, Abby, even made a surprise cameo) where Roo vets and techs were able to ask all their tax questions and get a good overview of how to prepare for tax season and beyond. Watch the webinar using the link below or read on to see what we learned.
Here’s everything you need to know for how to file taxes as an independent contractor:
Tax Planning: The dress for success of Tax Season
Tax prep is simply filing your annual taxes and following the rules. It happens once a year. Tax planning goes far beyond this and happens year round (usually with the help of a professional). It’s about achieving your financial goals. Ultimately, it all comes down to using the tax code to pay the lowest amount possible.
Did you know the IRS tax code was actually designed to give us money?!
This is especially true when you file taxes as an independent contractor. So what are you doing to take advantage of it?
As with all things outside our area of expertise, we highly recommend finding a solid tax professional to help with your specific situation. And if you’re looking for an exceptional tax pro who specializes in helping vets and techs, there’s Michelle!
How much should relief vets and techs set aside for taxes?
The magic number is 30%.
As a good rule of thumb, if you set aside around 30% of each direct deposit you receive from Roo (along with any other independent contractor income) you should be prepared for success when you file your annual taxes. This number includes your federal return (assuming a 22% income bracket) and state and local taxes. If you live in a state like Florida, Nevada, Texas, or Washington that doesn’t have state income taxes, feel free to set aside a little less.
To quickly calculate this, hop over to your History & Earnings tab in the Roo app. We’ve done the hard work for you, keeping track of every penny you’ve made. Multiply what you see by 0.3, and that’s the number you’re looking for. We even organize it monthly, quarterly, or annually for you depending how you want to break it down.
Hugely important: By “set aside,” we don’t mean just let your money sit there — this is where tax prep becomes tax planning! We recommend putting that money in an interest-bearing or high-yield savings account so your money actually makes you money while it waits. Local banks and credit unions tend to offer higher account yields, so take a look there before heading over to the corporate big boys. Or, since interest rates are so high right now, you can put that money in a 6-month or 3-month CD to turn the tables and make those interest rates work for you (*check with a financial advisor for personalized investment advice)!
Betterment, an online investing company, offers a lot of great investment/savings options as well. We even use them here at Roo for our employees’ 401ks!
Heads up: When you file taxes as an independent contractor, you’ll also need to be aware of the Self Employment Tax, which is around 15.3% and includes things like Social Security and Medicare taxes. This is NOT INCLUDED in the above 30% calculation. Don’t worry, there are ways around this, which brings us to…
S-Corps, LLCs, lions, and bears — oh my!
Setting yourself up as a business, such as an S-Corp, C-Corp, or sole proprietorship allows you to sidestep some of the self-employment tax. Essentially, you’re setting up a company where you’re the only employee. There’s a lot that goes into that, so it’s best to get the advice of a tax pro before embarking on this journey. Let them be the Gandalf to your Frodo on your journey into federal government Mordor.
Whether you establish as an S-Corp, C-Corp, or sole proprietorship all comes down to your unique situation. Generally speaking, if you have over 100,000 in gross revenue and/or $40,000 in profit, you should consider setting up an S-Corp.
Here’s something nifty: You can change from a Sole Proprietorship to an S-Corp mid-year if you want, AND you may even be able to make this change retroactive to the beginning of the tax year if you do it right. Check with Gandalf!
S-Corps vs. LLCs: What’s the difference?
Ones’s legal, one’s for taxes.
A Limited Liability Company (LLC) and Professional Limited Liability Company (PLLC) are legal entities, which have nothing to do with taxes. These protect you legally if you get sued, preventing others from going after your personal assets. There is no income threshold to form either an LLC or PLLC. Think about it like malpractice insurance, it’s usually good to have some form of protection in place, so we pretty much recommend this step for everybody. LLCs will not protect you from medical issues (that’s what malpractice insurance is for) so it’ i’s still good to have both. As Dr. Andrew says, “Never underestimate the randomness of life.”
An S-Corp/C-Corp/sole proprietorship is a one-person business you set up for tax purposes. This is the one you’ll need to sidestep the self-employment tax and gain other tax benefits.
What about business licenses and working out of state?
Relief work is inherently mobile, which makes these rules tricky to follow. Business licenses were intended for brick and mortar businesses. Thankfully, this means these rules typically don’t apply to relief vets and techs.
USUALLY, you don’t need business licenses in every state you work, just one in your home state should do it. This goes for your S-Corp or C-Corp, too — you typically only need one in the state where you’re incorporated/based out of. You know, where your mail gets sent. Speaking of out-of-state work…
Where should I file my taxes if I worked in more than one state this year?
Short answer: You’ll need to file a tax return in EVERY state you worked during a given tax year.
If you worked in multiple states this year, you’ll need to file a regular tax return in your “Tax Home” — this is typically the state where you live, are registered to vote, and have your driver’s license.
You’ll also need to file a non-resident tax return in any other state where you worked but don’t live. You’re required to self-report these, so back to our theme: it’s your responsibility to be proactive about out-of-state returns, which is always preferred to the Eye of Sauron finding you in the form of an IRS audit.
IMPORTANT: This excludes states that don’t have state income taxes, which are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming as of 2023.
You should never be double-taxed — typically, your home state will provide a credit for any taxes paid in another state. Some states also have reciprocity agreements with each other, which makes this a little less complicated (though these usually only pertain to W-2 employees, not 1099 employees).
Quarterly or Annually: When should I file taxes as an independent contractor?
If you’re expected to owe more than $1000, you should make quarterly estimated tax payments. As a 1099 relief vet you will very likely owe more than $1000 in taxes.
What are my quarterly estimated tax payments?
Easy. Take last year’s tax bill and divide that by four. This will give you your quarterly estimated payments in a flash (pending how good your math game is). These are called “safe harbor estimates,” which prevent you from having to pay interest and penalties.
You can also base your income on factual revenue. Take your Q1 income and annualize it: divide by 3 (to break it down monthly), multiply by 12, and base your estimated payments on 30% of that. If you overpay, that’s okay — you’ll get that money back.
When are the quarterly independent contractor tax deadlines?
Quarterly tax due dates are:
- April 15th
- June 15th
- September 15th
- January 15th
These due dates are all included in the Roo app under the History & Earnings tab, which breaks down your income quarterly or monthly to help with these calculations.
Do I have to?
Nope. You don’t have to pay these quarterly payments. But, if you miss a payment, you’re going to get hit with some interest and penalties.
For some, this is totally worth not having to deal with making tax payments so often. Some relief vets have even found ways to earn more through high-yield savings accounts/3-month CDs, outpacing these penalties. It’s entirely up to you whether you want to pay quarterly taxes or not, just be aware of those penalties.
Tax Deductions: This is where the fun begins
Remember that bit several sections up where we said the IRS tax code is designed to save you money? Now the good part:
Tax deductions reduce your taxable income, which lowers the amount of taxes you’ll have to pay so you can take some of that 30% you saved and have it left over.
Basically, subtract your “business costs” from your independent contractor income, and the result is your taxable income. This is what you actually pay taxes on when you file.
For example (using round numbers and hypothetical estimates), say you made $100,000 working with Roo this year. 30% of that is 30,000, which you would owe. Buuuuuut, if you bought a $10,000 ultrasound machine, you can deduct that from your $100,000 total income to get $90,000. 30% of that is only 27,000. And so on.
Anything that can be considered an “ordinary and necessary” business expense can be written off as tax credits. This includes licensing fees, medical equipment, CE costs, costs to travel to your CE, professional liability insurance premiums, and a whole lot more.
Here’s your Giant List of Veterinary Tax Deductions courtesy of Michelle at FitMoney CPA and the AAHA.
Keep good records of your receipts
The IRS will not accept credit card statements as proof. Dr. Andrew’s genius life hack is to take photos of all your receipts, and sync your photos with Google Photos (if you’re on Android this happens automatically). Then, you can actually type “receipt” into the search field in Google Photos, and it will recognize what’s a receipt and pull everything up automatically.
Alternatively, there are various apps you can use to track expenses, including Stride Health’s tax app, which tracks expenses, milage, helps with tax prep, and more.
Milage: Drive into tax savings
There’s an app for that — and you already have it. It’s Roo!
Roo automatically includes a mileage tracker in the History and Earnings tab, which will keep track of this for you. It’s worth noting Roo tracks distance “as the crow flies,” which may be lower than your actual driving distance. If you want to get every ounce of tax savings you can, we recommend using an app like Mile IQ, which tracks your milage using GPS, or simply using Google Maps to calculate distance traveled.
The second you walk out the door, every mile you travel is tax deductible. Even if you’re going to the post office or an office supply store! At around 68 cents per mile, that adds up fast. We recommend keeping track of even small amounts of milage. There’s no cap.
Turn personal expenses into business expenses
No, this is not an uncool thing to do. We’ll say it again: The IRS tax code was written to save you money! They’re counting on you doing this.
One of the HUGE benefits of being an independent contractor is the ability to turn personal expenses into business expenses. For example, your cell phone: you rely on your phone to find work so you can take a percentage of those costs as a business deduction.
Searching for Roo shifts on your desktop computer absolutely counts as work. You probably do that in a home office right? There’s actually a simplified home office deduction that allows you to make a standard deduction on your taxes based on the square footage of your office vs. the square footage of your whole house. This allows you to write off things like the utilities required to heat, cool, and electrify that space. Internet is an additional expense that you can write off a percentage of just like your cell phone bill. Need to furnish your office? That chair, desk, and computer you use to browse relief shifts can all be written off too!
Are you registered with the DEA? If you followed our recommendations for relief vets, you may have designated a room in your home to be your “principal location.” Boom — standard home office deduction that puppy!
Michelle recommends you DO NOT try to deduct rent as that can get you into some hairy situations. Sorry, you’re on your own with your landlord.
*If you work part time on the side as an independent contractor while also working as a full-time employee at an animal hospital, only a portion of the above expenses are deductible when you file taxes. It’s up to you and a tax professional to make this call for your personal situation.
Take a little trip, take a little trip, take a little trip with CE
Get this: Traveling to a CE event or a Roo shift is an amazing way to save big on your taxes. If you can, find a CE event out of the country and save big on that vacation! Extend your trip a few days and tack on some tourism time. The personal portion of your trip won’t be deductible, but the overall travel to and from will be, so you’re essentially getting a discounted vacation (with a side of CE).
When you travel more than 50 miles from home, your airfare, lodging, and meals* (and snacks!) all become deductible. The only limitation here is “it can’t be extravagant.” This basically means those meal and snack expenses you’re writing off should be roughly equivalent to what you’d normally spend on yourself at home. So if you don’t regularly dine at fancy steakhouses for $200, I wouldn’t try to pull that on the IRS. Yes, we know we bring it up a lot. It’s a pretty sweet deal, okay?
*Meals are only 50% deductible as of 2023.
Brownie Points: You can even deduct meals you buy for other people! So if you want to take that awesome technician you just met out to lunch, go for it! Networking events are deductible too.
Sick of doing math at this point? Me too! There’s a standard per diem rate you can write-off for meals and lodging if you lost your receipts or just don’t feel like dealing with numbers today. It varies by state, so you’ll want to get the latest info from a reliable source.
Super Pro Tip: If you’re able to save money on your flights by traveling a day early, you can deduct the extra day (including hotel costs) as part of your overall travel costs since you had to get there early to save money. It’s an excellent bonus vacation day loophole not many people know about.
Roo resources to file taxes as an independent contractor
We fully appreciate filing taxes is a pain and one of the more challenging aspects of working as an independent contractor. That’s why we’re always looking to provide support however we can. The History and Earnings tab and Roo Mileage Tracker can be a huge help. And we’re constantly building out our massive library of tax documents, webinars, and resources. It’s all here in our Roo Tax Center, check it out:
Finally, none of this would even be possible without the help and support of Michelle and FitMoney CPA. If you’re looking for a tax professional who has a wealth of experience working with veterinary professionals (and making them wealthy), look no further. This is her passion and she loves working with vets and vet techs.
We hope this has been helpful, and we wish you many savings this tax season!
Sources & disclaimer
These great tax tips are brought to you through our partnership with Fit Money CPA, who have been tremendously helpful supporting our Roo relief veterinarians and technicians manage their taxes as independent contractors. The advice provided here is for informational purposes only, and you should always check with your tax professional for up-to-date information that applies specifically to you.
