Local Travel as an IC? Worth it?

NedRN · Dec 21, 2014

If you are working locally and commuting from your home, you are not eligible for any special tax treatment by your agencies currently. If you are collecting tax-free stipends, you need to declare those as income and pay taxes on them.

There are only three reasons to incorporate (or form an LLC) here: liability, benefits, or because your clients require it. Liability is not an issue here, you need lots of insurance. There are no particular benefits coming to a pass through entities (most LLCs or S corporation) that are not available to sole proprietors (with one possible exception being a K-1 distribution - a bit sketchy for a single person entity in our revenue bracket). A regular or S corporation gets you full first dollar deductibility on all health costs, which can really add up if you have health issues or have a family. In addition, a C corp can contribute profit sharing to a 401 retirement plan without FICA, saving 15.3% on those contributions (plus income tax is also deferred). Final reason to incorporate is if the client requires it. And hospitals should refuse to do business with sole proprietors for some potential and real issues with future liability for workers comp and unemployment claims. The reality is that if you present yourself as an agency, they will assume that you are incorporated. That said, it is trivial and almost cost free to form an LLC in most states so you might as well cover yourself should any hospital ever do due diligence on your agency entity type.

Let's forget all of those tax details though, the main reason to cut out the middleman agency is to collect the 20 to 30 percent or so gross profit margin they are taking for themselves. This is a huge jump in income, 30 to 40 percent more than you are making now. And that is after taxes and expenses - both of which are on a level playing field as they are all (or should be) being paid now.

Yes, if you are currently (and illegally) taking tax free stipends right now, the bump won't be as big. But you will be legal. In addition to just those numbers above, you have some advantages over regular agencies. You are only negotitating for one traveler, no need to lower your rates to something competitive so you can place other travelers. I can tell you that almost invariably that I have had the highest bill rate of any agency at every contract I have had in the last 10 years. Of course, I also have a very good profile in an in-demand specialty. Managers don't care about a few bucks an hour to get the traveler they want. HR/staffing will care, but again not so much about just one traveler a manager wants.

Increases in income aside, you will look at your job and career very differently when you are working for yourself. There is usually a big jump up in professionalism.

LocalRNIC · Dec 21, 2014

Fortunately the agency that I have been working with for my contracts has been very by-the-book when it comes to their pay practices. All of my contracts have been at a flat, hourly rate and have had all of the appropriate taxes taken out just as they would be in any standard W-2 type position. I've been approached by other agencies that promise the moon and the stars and assure me that they can put me into a local contract with all the tax-free goodies to boot! I actually have found it helpful, because it has reduced the list of potential agencies I want to utilize VERY rapidly.

I am leaning towards the retirement advantage of a C corporation as my intended structure. I am fortunate to have exceptional health coverage through my wife's employer, so the advantage of subchapter S doesn't get me too excited. However, as my current salary is adequate to provide for the day to day expenses, the ability to exponentially increase my retirement savings has me swooning.

Within that framework, though, is there a significant change in how I would "pay" myself from the corporation given the lack of tax free stipends? Or am I overcomplicating this?

(perhaps a conversation better suited for an email exchange?)

If you are working locally and commuting from your home, you are not eligible for any special tax treatment by your agencies currently. If you are collecting tax-free stipends, you need to declare those as income and pay taxes on them.
There are only three reasons to incorporate (or form an LLC) here: liability, benefits, or because your clients require it. Liability is not an issue here, you need lots of insurance. There are no particular benefits coming to a pass through entities (most LLCs or S corporation) that are not available to sole proprietors (with one possible exception being a K-1 distribution - a bit sketchy for a single person entity in our revenue bracket). A regular or S corporation gets you full first dollar deductibility on all health costs, which can really add up if you have health issues or have a family. In addition, a C corp can contribute profit sharing to a 401 retirement plan without FICA, saving 15.3% on those contributions (plus income tax is also deferred). Final reason to incorporate is if the client requires it. And hospitals should refuse to do business with sole proprietors for some potential and real issues with future liability for workers comp and unemployment claims. The reality is that if you present yourself as an agency, they will assume that you are incorporated. That said, it is trivial and almost cost free to form an LLC in most states so you might as well cover yourself should any hospital ever do due diligence on your agency entity type.
Let's forget all of those tax details though, the main reason to cut out the middleman agency is to collect the 20 to 30 percent or so gross profit margin they are taking for themselves. This is a huge jump in income, 30 to 40 percent more than you are making now. And that is after taxes and expenses - both of which are on a level playing field as they are all (or should be) being paid now.
Yes, if you are currently (and illegally) taking tax free stipends right now, the bump won't be as big. But you will be legal. In addition to just those numbers above, you have some advantages over regular agencies. You are only negotitating for one traveler, no need to lower your rates to something competitive so you can place other travelers. I can tell you that almost invariably that I have had the highest bill rate of any agency at every contract I have had in the last 10 years. Of course, I also have a very good profile in an in-demand specialty. Managers don't care about a few bucks an hour to get the traveler they want. HR/staffing will care, but again not so much about just one traveler a manager wants.
Increases in income aside, you will look at your job and career very differently when you are working for yourself. There is usually a big jump up in professionalism.

NedRN · Dec 21, 2014

A public discussion is fine, a bit sideways for most but probably an interesting idea to think about. I always think about how to "buy wholesale" and how business models work and thought of bypassing agencies as soon as I started traveling. It took me 9 years of traveling before I did go IC after talking to an HR person at a hospital I was traveling to who told me that she would take on a new agency to get one contract. I had just assumed that a hospital would only take on a vendor that could provide many travelers. Wish I had started years earlier.

Entrepreneurs in nursing is a better forum for these discussions on Allnurses really, even if you were doing travel (which is effectively what you are doing).

Great you are being paid correctly! Less to worry about what happens if you get audited.

Generally the IRS wants you to report taxable earnings quarterly no matter the type of business entity. They want to collect withholding tax and not wait until end of the year. How often you pay yourself is entirely up to you though, but estimated taxes are due quarterly. I pay myself just once a year and manage not to pay quarterly estimated taxes by paying "seasonally". That is also a quirk of the "cash" accounting system I use, most businesses use "accrual". I do use a payroll company for my annual payroll as there are a lot of filings to do, depending on your state.

If you have an accountant, you may want to discuss your business form with him. C corporations are really rare for small businesses. Everyone is worried about "double taxation", having to pay corporate tax first, and then dividends that are also taxed. I don't find that a problem, I just zero balance my corporation every year - which is why I wait until the end of the year to pay myself whatever "profits" (really revenue) that is left over after deducting expenses. Pass through corporations don't have this issue, everything left at the end of the year is automatically, well, passed through! Having an LLC is easier than a corp as you don't have ongoing paperwork with required annual meetings.

As it happens, pass through is just a designation on your first tax return so you can make an LLC equivilant to a regular corporationn for tax purposes. This is super rare so definitely do some homework on it. I believe you are allowed to switch your business tax designation every few years if you realize your needs have changed.

Just as a heads up, I think $1,500 a year extra tax savings as significant, especially if you take the long view of 10 or 20 years. But many won't think that is worth the extra effort of a regular corporation. I mention that figure because my profit sharing is $10,000 this year, which translates into tax savings of $1,500. That said, if you use healthcare, you can use your regular corp to pay for all premiums, copays, out of pocket annual maximum, and anything else not covered by insurance. For example, if I go to the drugstore to buy aspirin, not only is the OTC paid by my corp, but I also deduct the mileage. So it can add up and you never know when something might happen. You can write your incorporation papers (these are private business records and not filed in most states) to cover your family, so your wife's unreimbursed expenses would also be paid.