While some Optometrists are paid as employees, many are classified as independent contractors and paid as such.
It is critical to understand the difference between the two classifications and what it means for paying and filing taxes appropriately.
The following article, written by Gary Topple, CPA, helps explain some of the tax implications of the different tax classifications and how Optometrists can better prepare for tax filing season.
Watch Gary discuss the difference between W2 and W9 in this exclusive interview.
How to Keep the IRS Away
In my dentist’s office there is a sign that says “Ignore your teeth and they will go away.” With the IRS and your state tax department that is not necessarily true.
First things first. File your taxes by the deadline.
For individuals the deadline is April 15. If you need an extension of time to file your tax returns, you can file Form 4868 and whatever form your state requires. In NY it is Form IT-370. That gives you an extra six months to file your tax returns, but it is not an extension of time to pay your tax.
If you do not pay your tax by April 15, you can be subject to late payment penalties.
Additionally, if the underpayment is large enough, the IRS and your state will treat your extensions as if they were not filed and also charge you a late filing penalty when you ultimately file your tax returns.
The IRS tax system is a pay as you go system.
If you are an employee, your employer withholds the tax from your paycheck and remits it to the IRS on your behalf.
If you are self-employed you are required to pay estimated taxes four times a year if you expect to owe at least $1,000 in tax.
The estimated tax payments are due on April 15, June 15, September 15 and January 15.
The estimates can be based on the current year income tax liability or on your prior year tax liability. If you pay 90% of your current year tax liability or 100% of your prior year tax (110% if your income in the previous year was more than $150,000).
Check out this guide on how Optometrists can estimate quarterly tax payments as an independent contractor.
If you cannot pay your tax when due, file the tax return with no payment, or a partial payment.
The IRS has a form that allows you to request an installment agreement to pay the tax. It is Form 9465. Of course you will be charged interest on the outstanding balance.
There are some who cannot afford to pay the total amount of the tax even using the installment agreement.
The IRS allows qualified individuals to negotiate a settled amount that is less than the tax owed.
Submitting an application does not guarantee acceptance by the IRS.
They will look at your financial situation in detail – all your assets and debt as well as your sources of income. After the IRS analyzes your financial position, they will not accept an offer if they determine that your tax debt can be paid in full by selling your assets or entering into an installment agreement.
The bottom line is to stay current on your tax obligation by having enough tax withheld by your employer or by timely paying your quarterly estimated taxes.
It is critical to have the support of a great accountant. Feel free to contact Gary with any additional questions you may have.
Gary Topple, CPA has clients located throughout the continental United States. You can reach him by e-mail, Skye, telephone, fax and US mail.
390 North Broadway
Jericho, NY 11753