How to Estimate Quarterly Tax Payments as an Independent Contractor OD

How to estimate quarterly tax payments

Many optometrists working in private practice, opticals, or even commercial modalities are treated as independent contractors as opposed to employees. Often times, there is not much of a difference between the two in regards to how you are treated or what your work entails. The distinction presents itself in how you are paid.

Independent contractors are treated as “self employed” and as such, are paid on a 1099 tax form rather than a W2 tax form. This is the form that an employer sends the employee at the end of the year to show the employees total earnings and will be critical for doing estimate quarterly tax payments.

Here is a video, The Basics of Tax W2 vs W9 in Optometry, and estimate quarterly tax payments– Interview with CPA Gary Topple

The difference between at 1099 and a W2 tax form

  • As a 1099 tax filer, you are responsible for paying all necessary taxes to the government and calculating the withholding tax deductions from your paycheck.
  • As a W2 tax filer, taxes are withheld by your employer, typically per paycheck.
  • One of the biggest differences between a 1099 and a W2 pay modality is that, as a self-employed individual (1099), you are responsible for the full tax rate for FICA which is roughly an additional 7.5% cost to you, a sum that your employer saves. As a W2 employee your employer would have to pay this 7.5%.
  • One benefit as a 1099 tax filer is that you are eligible to deduct “business” expenses from your wages. This can effectively save you money on your taxes.

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About Antonio Chirumbolo

Antonio Chirumbolo
Antonio Chirumbolo, OD, is Associate Director of Marketing at CovalentCareers. Antonio's focus is in the world of digital publications and healthcare marketing, with special attention on content creation, management, and development.

13 comments

  1. Thank Antonio
    This article was very helpful. I will be graduating here pretty soon and I will be working at multiple office. Needless to say, I will need to know this info pretty well in the near future. My question for you is have you created a business entity to help avoid being over taxed? If so what business structure did you choose?

    • Matthew Geller

      Hey Ross, Matt here. Maybe I can help with your question. What do you mean by “overtaxed”? The business entity Antonio technically created is a “sole proprietorship”. This entity is pretty basic and does offer much in the way of legal protection. Are you asking if created an LLC or Corporation to regulate his taxes? If Antonio wanted to create an LLC he would still be a “single member” LLC which is taxed in the same exact way as a sole prop / independent contractor. An LLC doesn’t pay taxes directly, the members pay it via the LLC. Creating an LLC wouldn’t be advantageous because you have to pay the cost to file the LLC and maintain it, plus in some states pay an LLC tax (in California its $800 minimum). If Antonio went and covered himself as a S or C Corporation he would not only pay taxes on earnings, but he would pay a Corporate Tax… I think in California thats about 8.6%.

      So back to your question about being “overtaxed” – I believe you are saying, “how can you write off expenses so that you lower your tax liability”. If this is what you are asking then Antonio wouldn’t need to create an LLC or a Corporation to do this. You can simple do this as an Independent Contractor / Sole Proprietor. All you need to do is supply your write off amounts to your accountant. You can supply that via Quickbooks or an Excel Spreadsheet. This will effectively lower your tax burden.

      Technically, being “overtaxed” would occur at the error of the individual or the accountant, not the Government. It is your job as a business owner or independent contractor to plan in advance the best strategy to do what is right on your taxes. You must play within the law, but there are many ways to lower your tax burden legally.

      Any more questions, just holler!

  2. Thanks for the article, Antonio. Question regarding the link about mileage deductions – it seems like the idea is to establish a home office, “go there” before and after driving to an optometry office, and therefore turn commutes into a deductible expense. Is it fair to assume that this home office has to meet the home office deduction requirements, which are strict and a potential audit trigger? http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction

    On another note, can someone familiar with S corps explain how they determined their reasonable salary?

    • Antonio Chirumbolo

      David you are 100% correct. Establishing the home office and going there before work to turn your commute into a deductible expense is a little more complicated than it seems.

      Like you said, your home office must be an actual home office, and requirements are strict. Deducting a home office is indeed a flag raiser for audits.

      I tend to be a bit more conservative with deductions and do not recommend people try to work around the system. However, if you do have an office at home for work related reasons, be it you run some type of business at home, or if you handle your billing and coding from home, and then you travel to the office to see patients, then it is perfectly reasonable to utilize the deductions that are within reason.

      As for the S-Corp, I don’t have much experience with that at all. Let’s see if I can ask our tax consultant on that.

      Thanks for the comment!
      –Antonio

  3. Excellent article Antonio. I will use it as a resource when I explain estimated tax payments to clients who are self-employed optometrists or other entrepreneurs. It will give my entrepreneur clients something to read after I meet with them. It will help to reinforce what was discussed.

  4. Joanna Vuong

    Hello, thank you so much for this article! Are you aware of any changes for 2016? Also, in looking at the 1040-ES form for 2016, it seems like I should include self-employment tax as part of my estimate tax payment, is that correct?

  5. Nathan Goldberg

    Hi Antonio,

    Does an employer have a choice as to whether to pay you as a 1099 or W-2? What if you work part-time, but have a set schedule that is the same every week and all equipment, billing and coding, and malpractice, etc. are provided by the employer? Can they still pay you as a 1099?

    Thanks,
    Nathan

    • Antonio Chirumbolo

      Hey Nathan, the rules on Independent Contractor vs Employee are extremely specific. Many employers want to pay their employees as a 1099 to save on FICA taxes. There are some people however who want to be paid as 1099 even though they may be technically employees so they can make itemized deductions.

  6. Osvaldo Cabrera

    Hello,

    What is a reasonable salary to pay yourself annually if you are the owner of a single member LLC?

    Thanks

    • Matthew Geller

      Hey, Osvlado,

      That question is very difficult to answer since there is no one set rate. It’s all about your end goal. If you are trying to grow, you would likely pay yourself far less, and then use the left over money to reinvest. If you’re goal is to generate a salary, you would likely pay yourself more and invest in the business less. Even that is an oversimplification, so be cautious taking that advice. Typically as a business owner, you pay yourself last. You need to ensure the business runs, that you invest in growth, and that you have enough dollars in the bank to pay taxes and also as a security should an emergency come up. Only then can you decide how much money to take out in a distribution/draw. A single member LLC is a pass through entity, by IRS tax code, so that means you don’t really “pay yourself” at all. Any net profits and losses are yours, regardless if you cut yourself a check. If you had a partnership LLC, that is a different story. I would read A LOT on investopedia.com Hope this helps!

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