[froindt]

Unless there's a weird provision I'm not aware of, you could be over representing the value of the deduction.

The best thing for the doctor is to get paid (and pay taxes on) $400. The $300 deduction is of no value to them because they never recognized the $300 as income. The deduction is basically "Hey, sorry you couldn't collect your billed amount. You don't need to pay taxes on money you didn't earn".

Sorry if you fully understand this already. The lack of understanding of basic taxes is a pet peeve of mine. People make statements like "Johnny was looking for one more tax deduction, so he donated to my charity". Johnny probably cares about the charity or at least looking good in the community, because he'd have a larger net worth if he just sucked it up and paid taxes rather than donating it.

[will_brown]

>The best thing for the doctor is to get paid (and pay taxes on) $400.

No...the best thing is for the doctor to not upset the insurance company and get dropped from their network and lose all their patients.

Remember the famous line if you like your insurance/doctor you can keep your insurance/doctor. Turns out the president has no control over whether insurance will outright drop doctors from their networks.

As to your point on accounting, it simply depends on the doctors/hospitals accounting practices. It’s possible there is no deduction as you say (no big deal to the doctor, they got paid their fee anyway) or they can use an actual method of accounting and carry the loss forward.

[froindt]

> or they can use an actual method of accounting and carry the loss forward

Yep, it's been 7 years since I took an accounting class (and it shows). Thanks for adding that.

[will_brown]

Sorry I meant “accrual method of accounting” auto corrected to “actual”...looks like you caught my gist.

[Stratoscope]

In fact you may be understating it a bit. If the doctor uses cash accounting, then it's not that the $300 deduction is of no value, there is no $300 tax deduction.

As you point out, a cash basis taxpayer pays taxes on actual income received. Money you may have hoped to receive but didn't isn't income, so there is no tax and no deduction related to it.

If the doctor filed taxes using the accrual accounting method it would be different.

[will_brown]

As I mention to a number of other comments...it simply depends on the accounting method.

It can be waived (not treated as income at all as you say) or it can be treated as income (taxes paid) and the loss carried forward for future deduction.

[Stratoscope]

Yes, I was assuming cash accounting. I updated my comment to mention the difference between cash and accrual accounting, thanks for noticing that.

[dragonwriter]

> Johnny probably cares about the charity or at least looking good in the community, because he'd have a larger net worth if he just sucked it up and paid taxes rather than donating it.

You are assuming that Johnny isn't the one that doesn't understand tax deductions.

[trefn]

I don't know if the parent comment is correct and that the difference is tax deductible... but if so it is real money.

If the marginal tax rate for the Dr. is 50% (like it probably is in CA) then a $300 deduction is $150 in tax savings.

[Stratoscope]

The only way the doctor would get a $300 deduction is if they use accrual accounting and had already reported the $400 as taxable income. It's isn't a free deduction that comes out of nowhere.

With accrual, you report income when you bill for it, not when you receive it. Suppose you treat a patient on December 31 and bill the insurance $400 on same day. You report the $400 as income and pay taxes for the entire $400 in that year.

The next year, insurance only pays $100, so now you have a $300 loss to report in the new year. But you only have this loss because you've already reported the $300 as income.

If the doctor uses cash accounting, there would not be a $400 income entry on December. There wouldn't be any income to report until they are actually paid, and then the income is the actual amount they are paid, $100.

[jessaustin]

Thank you for spelling this out. Other comments ITT are confused and confusing...