Transitioning to 1099 work comes with a learning curve, especially around taxes. Here are the five most common mistakes healthcare contractors make—and how to avoid them.
Mistake #1: Not Setting Aside Money for Taxes
The Problem: Many new contractors spend their full paycheck, then scramble when quarterly taxes are due.
The Solution: Open a separate savings account and transfer 25-30% of every payment immediately. Treat it like it was never yours to spend.
Mistake #2: Missing Quarterly Payment Deadlines
The Problem: The IRS charges penalties for underpayment and late payment of estimated taxes.
The Solution: Set calendar reminders 2 weeks before each deadline (April 15, June 16, September 15, January 15). Better yet, use a tool that tracks your obligations and reminds you.
Mistake #3: Not Tracking Deductible Expenses
The Problem: Many contractors leave money on the table by not tracking all their business expenses.
The Solution: Use a dedicated expense tracking system. Capture expenses as they happen—don't rely on memory at year-end. Categories to track include:
- Mileage (keep a detailed log)
- CME and conferences
- Professional fees and licenses
- Equipment and supplies
- Home office expenses
- Health insurance premiums
Mistake #4: Mixing Personal and Business Finances
The Problem: Commingling funds makes it difficult to track expenses and creates audit risks.
The Solution: Open a separate business checking account and credit card. Use these exclusively for business expenses. This makes bookkeeping easier and provides a clear paper trail.
Mistake #5: Not Planning for Retirement
The Problem: Without an employer 401(k), many contractors don't save for retirement and miss valuable tax deductions.
The Solution: Open a Solo 401(k) or SEP-IRA. Contributions reduce your taxable income now and grow tax-deferred. In 2025, you can potentially contribute up to $69,000 to a Solo 401(k).
Bonus Mistake: DIY When You Need Professional Help
While many expenses can be tracked yourself, complex situations benefit from professional advice. Consider consulting a CPA or tax professional if you:
- Earn over $150,000 annually
- Are considering incorporating
- Have multiple income streams
- Own rental property or have investments
- Are unsure about any tax situation
Remember: The cost of professional tax advice is deductible, and a good advisor can save you far more than they cost.