Tax rules for relief veterinarians

Relief veterinarians are typically treated as independent contractors responsible for their own income taxes and the reporting of their earnings and expenses. And most relief veterinarians conduct their practice activity as sole proprietors. Based on this, you'd report net income or loss from your relief practice on your personal income tax return. There are several important rules you should be aware of, however.

For income tax purposes, you'll report your income and expenses on Schedule C of your Form 1040. The net income will be taxable to you regardless of whether you withdraw cash from the practice.

If you perform management or administrative tasks from a home office, you may be entitled to deduct an allocable portion of certain costs of maintaining your home. And if you have a home office, you may be able to convert nondeductible commuting expenses (from home to work) into deductible transportation expenses.

You will also be required to pay self-employment taxes at a rate of 15.3 percent on your net earnings from self-employment of up to $94,200 for 2006, and at a rate of 2.9 percent on the excess. One-half of your self-employment taxes will be deductible as a trade or business expense.

You will be allowed to deduct 100 percent of your health insurance costs as a trade or business expense. This means your deduction for medical care insurance won't be limited by the normal 7.5 percent-of-AGI floor on itemized medical expenses.

Your income won't be subject to withholding tax, but you'll be required to pay estimated taxes quarterly to both state and federal governments. These are due on April 15, June 15, Sept. 15, and Jan. 15 of the following year. Not making estimated payments will result in underpayment penalties.

You'll also have to maintain complete records of income and expenses. I recommend using a computer accounting or checkbook program to assist you. Pay attention to recording expenses so you can take the full amount of deductions you're entitled to. Certain types of expenses, such as car, travel, entertainment, meals, and home-office expenses are subject to special record-keeping requirements or limitations on their deductibility and require special attention.

Always seek tax counsel before starting your own relief practice and don't wait until tax time to get the proper advice. Start when you begin to offer relief services.

Gary I. Glassman, CPA, is a partner with Burzenski and Co. PC in East Haven, Conn., and a Veterinary Economics Editorial Advisory Board member.

Gary I. Glassman