bankruptcies

[Guest guest]

I’m getting conflicting opinions on righting off

bankruptcies and uncollectible accounts.

My accountant has always said I can’t do it, but I

just had a guy tell me you can.

What’s the group-think on this issue?

Don

Corvallis

[Guest guest]

Hi Don,

My accounting education at PSU and my 2 years working at a staff account for a corporation and preparing Jordan's financial statements for 10 years, tells me you can only write it off these items off on your taxes if you are not using Cash Basis accounting. The other option is Accrual accounting where you can write off uncollectible accounts as it is based on your projected receivables and not actual cash received.

Most medical practices are Cash Basis accounting, so you only pay taxes on what you collect. One item you can write off as an expense is employee theft, unfortunately this did happen to us. But if you want to know for sure, you can go online right to the tax code in question for acceptable business expenses and investigate it yourself.

Also review your schedule C form provided by the government on your past returns. You will see there is a space for Bad Debt from Sales or Services, line item 9 with a (see instructions) next to it, read the rules online for yourself. I trust our CPA and he has made it very clear that you cannot right off bankruptcies for Cash Basis accounting and that goes in line with my education too. Regardless of what my opinion is, just make sure that whoever is telling you to do this, that they are also willing to go with you when you are audited and take responsibility for that advise if it was wrong.

Good Luck,

Stockton

Cedar Mill Chiropractic Clinic

From: Don

Sent: Friday, March 05, 2004 5:07 PM

Subject: bankruptcies

I’m getting conflicting opinions on righting off bankruptcies and uncollectible accounts.

My accountant has always said I can’t do it, but I just had a guy tell me you can.

What’s the group-think on this issue?

Don

Corvallis

OregonDCs rules:1. Keep correspondence professional; the purpose of the listserve is to foster communication and collegiality. No personal attacks on listserve members will be tolerated.2. Always sign your e-mails with your first and last name.3. The listserve is not secure; your e-mail could end up anywhere. However, it is against the rules of the listserve to copy, print, forward, or otherwise distribute correspondence written by another member without his or her consent, unless all personal identifiers have been removed.

[Guest guest]

, the only thing I would add to this is that you can write off 'cost of goods' that were lost in the bankruptcy. If there were items sold in the bill that went bad. My accountant mentioned that I could write those off.

Minga Guerrero

[Guest guest]

Hi Minga,

I would assume that you are referring to items such as orthotics, braced, neck pillows or vitamins and the business's cost on those items. If so, yes that is correct, but not for services provided, unless Accrual Accounting. If the DC provided those items and maintained a good accounting of that specific item's cost, it would be possible, but most DC just put these in a group line item expense, you would have to post to the patient account the actual cost of the item and I don't know how many DC are actually using a FIFO or LIFO inventory system to accurately track that cost or have a software billing program that properly enters and tracks the Cost of Goods Sold, but if a DC is very heavy into that area and have a lot of uncollectibles, they may want to consider having that in their billing program. I managed the accounting for a multi-million dollar timber exporter, so the accuracy of Cost of Goods Sold was critically to determining our profitability, and it was a challenge, as it had to be calculated from the raw log to the final product being shipped. Which sometimes in the end became material for window frames and coffins for shipment to Italy.

I imagine, this is maybe where the person got confused on what you can write off when they advised Don, but if Don reads the tax code he will see those distinctions too. Thanks for addressing those minor items that maybe could help a little, especially if a DC uses those a lot in their practice and then bills the patient. However, our policy is that those items are always paid upfront, and usually regardless if the patient has insurance. You can never predict if it will be covered, then you will never have an uncollectible account for supplies already bought in advance by the clinic and you don't then have to hassle with Cost of Goods Sold, plus it is a good way for any DC to protect themselves financially. In 10 years, we have never had a patient complain about purchasing these items upfront. We also don't bill the patient for services, ever. Even if they have health insurance, of course this doesn't apply to MVA or WC, but we confirm all the plans we bill as a courtesy, and know exactly the allowables per service and what is covered and what is not. So all patients pay for deductibles, coinsurance, co-pays and non-covered items upfront. We also don't bill any out of state carrier, unless we have a contract with them, like United. Patients submit their own Super Bill. All of this makes my job much easier and provides for an even predictable cash flow and we then know the patient is truly committed to the care and not just to their insurance plan. I encourage all offices to think about trying any of these ideas to improve cash flow, if they don't do it now.

Thanks again,

Re: bankruptcies

, the only thing I would add to this is that you can write off 'cost of goods' that were lost in the bankruptcy. If there were items sold in the bill that went bad. My accountant mentioned that I could write those off.Minga Guerrero OregonDCs rules:1. Keep correspondence professional; the purpose of the listserve is to foster communication and collegiality. No personal attacks on listserve members will be tolerated.2. Always sign your e-mails with your first and last name.3. The listserve is not secure; your e-mail could end up anywhere. However, it is against the rules of the listserve to copy, print, forward, or otherwise distribute correspondence written by another member without his or her consent, unless all personal identifiers have been removed.