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About 99% of the population finds taxes tedious and confusing. Nursing schools don’t require accounting courses as part of their curriculum; therefore, our profession may not be well-versed in financial accounting. But don’t we all like saving money? To make the most of your income, try reframing tax time to be a season of learning so you can set yourself up for financial independence and enjoy your time away from work.
Here are five ways for nurses to make the most of tax season in 2023.
1. Harness the Power of Your W-2 or 1099
There are two main types of employment:
Payroll employees: Payroll employees are paid a regular paycheck by their employer and receive a W-2 at the end of the calendar year to file taxes.
Contractors: Contractors pick up gig work and don’t have the guarantee of a regular wage and receive a 1099 form. If you pick up gig work as a W-2 employee, you would be responsible for both W-2 and 1099 forms and the taxes for each.
- Steady paycheck
- Elected benefits
- Sometimes more rigid scheduling
- Flexibility with the work you accept
- Confusing at tax time
- No benefits
connectRN offers W-2 employment with more of the pros and less of the cons. Kalyn Weber, SVP of Clinician Experience at connectRN, affirms, “What’s great about working for a company like connectRN is you get the schedule flexibility and autonomy usually reserved for 1099 workers with the additional protections and benefits that accompany W-2 employment. This includes workers’ compensation, overtime protection, and unemployment insurance, to name just a few.”
2. Understand Deductions
Tax deductions reduce your total taxable income. To keep things simple, let’s say you made $10,000 last year. That puts you in the 10% tax bracket, and you would owe $1,000 in taxes. If you spent $100 on scrubs that year, you could deduct that from your taxable income. This means you would only be taxed 10% on $9,900 and owe $990 instead of $1,000.
As your income and tax bracket increase, these deductions save more money. But individually deducting your taxes (an itemized deduction) isn’t always the way to go. So let’s explore both options.
To provide relief to middle-class workers and protect all income from being subject to taxes, the IRS allows a standardized deduction option for all taxpayers. When adjusted for inflation, the 2023 standard deduction is as follows:
Married, filing separately: $13,850
Married, filing jointly or qualifying widow/er: $27,700
Head of household: $20,800
Over 65: Add additional $1,500 to one of the above categories, and if single, add $1,800
* Data from IRS.gov
You can reduce tax liability with itemized deductions if you have more deductions than the above standard amount. This requires filling out Form 1040 or seeking assistance from an accountant. If you file taxes through a software program like TurboTax or H&R Block Tax Filing, the platform will ask questions to help determine which deduction you should take.
What You Can Write-Off
Both W-2 and 1099 nurses can make deductions. Qualifying deductions by the IRS include:
- Qualifying medical and dental expenses
- State and local taxes, including real estate and property taxes
- Interest on your home mortgage (including buying down points)
- Gifts and charitable donations to qualifying charities (minimum amount of $250)
- Casualty and theft losses
- Nursing uniforms and scrubs
- Nursing licensure
- Nursing union dues
- Qualifying educational expenses, such as continuing education required to keep your job
- Travel to academic conferences, if required by work
Deductions specifically for 1099 contractors include:
- Internet and phone bills
- Certain home office expenses
- Mileage used for business purposes
- Certain travel and meal expenses
- Business subscriptions
- Work supplies
- Business insurance
- Accounting or legal fees
3. Know When To Do Taxes
There are two options for when to do taxes: quarterly or annually.
Quarterly taxes are considered “estimated tax payments” and are paid in April, June, and September. The official tax filing is completed in April. The IRS recommends quarterly taxes to individuals who are unsure how much to withhold or what they may owe at tax time. It’s also recommended to those who have received previous late penalties. In addition, the IRS requires that 1099 contractors file quarterly estimated taxes if they earned greater than $400 that quarter to ensure that contractors have paid their fair share of social security and Medicare taxes.
W-2 employees have the freedom to file taxes quarterly or annually. With a W-2 job, filing taxes only once a year reduces headaches and is straightforward when taking the standardized deduction.
4. Start Tax Season On The Right Foot
Safeguard Your Documents
Create a system to file and organize your documents to make tax season more bearable and reduce stress, particularly if the IRS audits you. For example, if you take itemized deductions, save receipts and proof of charitable donations, physically or electronically, for qualifying expenses. If you are a W-2 employee, keeping track of a singular W-2 will be simple. However, if you are a 1099 employee, you’ll need to keep track of all your income and expenses from each contract. This requires a robust organizational system and often the oversight of an accountant.
Start The Process On Time (Or Even Early)
The IRS allows you to file taxes for the previous year in mid-January. This year, Tax Day is April 18th, 2023. This is the due date to submit your tax filing to the government. If you choose to file an extension, your deadline changes to October 16th, 2023. Filing for an extension may help you avoid late penalties and allow extra time to get your documents in order. If you need an extension, check to see if you qualify and file for one as soon as possible.
5. Learn From Tax Season
Adjust Your W-4
The W-4 tells your employer how much tax to withhold. Withholding means “the amount of federal income tax withheld from your paycheck,” according to the IRS. Your employer prepays this to the IRS on your behalf in anticipation of annual taxes. You can adjust your W-4 at any point in the year, but it will only affect your paychecks after the adjustment is paid and is not retroactive. One of the benefits of having a W-2 job is the ability to adjust your W-4 at any point.
Did You Owe a Lot in Taxes?
If you owed taxes from your previous year as a W-2 employee, revisit your withholdings to your employer. This means you did not withhold enough taxes in your paycheck, and now you must pay a lump sum at tax time.
Did You Get a Huge Refund?
If you received a refund of thousands of dollars, this means you might be withholding too much money from your paycheck on your W-4 or that you overpaid quarterly taxes if you are a contractor. Even though the money was returned to you at tax time, the government essentially received an interest-free loan from you. If you didn’t miss the money, consider putting it in a Roth IRA or your employer-sponsored retirement account to gain interest and save it for later.
The Bottom Line (Literally)
Although taxes are complicated, it’s worth learning how to save money and create a strategy for financial freedom. If you’re unsure, talk with an accountant about how to save money at tax time.
Interested in having the stability of a W-2 but the freedom of 1099 work? Join the community at connectRN to learn more about how to transform your career.