Tax Deduction ?

[Scanner]

I have a chiropractic practice and I have 3 financial hardship/pro bono cases going right now where I am not collecting anything. That is the maximum I allow in my business and I do think that is part of serving as a doctor.

I was wondering if I can deduct this as "charity" on my tax return? I never have. . .but maybe I have missed a deduction over the years with this.

Would I just perhaps take the Medicare allowable fee for services rendered and then add them up and count that as charity?

[MonkeyMama]

Nope - no tax decution.

Sorry!

Kind of 2 issues at play:

1 - you can't deduct an amount for services given

2 - Even if you could, would only be for services you give to a charity

I could be wrong on #1, but I don't have any clients doing pro bono work for charities - just for random people. You can't give money to random people and take a tax deduction for that, either.

[disneysteve]

MonkeyMama is correct. Your patients are not qualified charities. Even if they were, volunteering your time is not deductible. I sure wish it were considering how many hours I spend at my synagogue. Only monetary donations (and tangible items) count as deductible.

[SnoopyCool]

Sounds like a bad business debt to me. Are you on a cash basis or accrual?

From the IRS website:

You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year.

Accrual method. If you use an accrual method of accounting, you normally report income as you earn it. You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income.

Cash method. If you use the cash method of accounting, you normally report income when you receive payment. You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income.

See Pub 535 for more info.

DS - Mileage counts, too.

[Scanner]

Okay. . .so I can't count it as charity (2 of the 3 cases are battered women so this isn't just like cutting Aunt Millie a break), but on my Schedule C it could be considered bad debt?

I realize it's sort of like donating time, but honestly I am not sure when you give away a professional service that's valuable on the market (got some value at least) that it's the same as sweeping up down at the synagogue, is it?

I am on a cash basis, not accrual.

[jpg7n16]

Originally Posted by MonkeyMama

1 - you can't deduct an amount for services given

I could be wrong on #1

Nope. You're not wrong.

From: Publication 526 (2010), Charitable Contributions

Value of Time or Services
You cannot deduct the value of your time or services, including:

• Blood donations to the Red Cross or to blood banks, and
  
• The value of income lost while you work as an unpaid volunteer for a qualified organization.

also: Publication 526 (2010), Charitable Contributions

Contributions You Cannot Deduct
There are some contributions you cannot deduct. There are others you can deduct only part of.

You cannot deduct as a charitable contribution:

1. A contribution to a specific individual,
   
2. A contribution to a nonqualified organization,
   
3. The part of a contribution from which you receive or expect to receive a benefit,
   
4. The value of your time or services,
   
5. Your personal expenses,
   
6. A qualified charitable distribution from an individual retirement arrangement (IRA),
   
7. Appraisal fees,
   
8. Certain contributions to donor advised funds, or
   
9. Certain contributions of partial interests in property.

Detailed discussions of these items follow.

[jpg7n16]

Originally Posted by Scanner

Okay. . .so I can't count it as charity (2 of the 3 cases are battered women so this isn't just like cutting Aunt Millie a break), but on my Schedule C it could be considered bad debt?

I realize it's sort of like donating time, but honestly I am not sure when you give away a professional service that's valuable on the market (got some value at least) that it's the same as sweeping up down at the synagogue, is it?

I am on a cash basis, not accrual.

You would have had to claim the income already under accrual basis, in order to write off the bad debt against it. (ie. 'well I claimed it as income last year, but they never ending paying me, so I really didn't earn it. I'd like my tax money back please.')

If you are on cash basis, you cannot get a deduction for writing off income you've never received.

So nope.

From: Tax Topics - Topic 453 Bad Debt Deduction

To deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. If you are a cash basis taxpayer, you may not take a bad debt deduction for money you expected to receive but did not (for example, for money owed to you for services performed, or rent) because that amount was never included in your income. For a bad debt, you must show that there was an intention at the time of the transaction to make a loan and not a gift. If you lend money to a relative or friend with the understanding that it may not be repaid, it is considered a gift and not a loan.

[Petunia 100]

Did you bill these people for your services and attempt to collect? If not, it isn't bad debt.

Even if it is, it is pointless to claim it as income and then write it off as bad debt. That only gets you right back to where you are now.

[SnoopyCool]

Originally Posted by Petunia 100

Did you bill these people for your services and attempt to collect? If not, it isn't bad debt.

Even if it is, it is pointless to claim it as income and then write it off as bad debt. That only gets you right back to where you are now.

If you do your accounting on an accrual basis, then I think you have to keep it consistent and count it, then take it off. Perhaps it doesn't matter, but when I think taxes I'm always thinking in terms of IRS audits and things that don't sync.

Either way, OP is on cash basis so doesn't apply in this scenario.