Myth: If you do not collect your full fee, you can deduct the difference as a loss on your taxes.
Fact: Unless you use a complex "accrual" book-keeping system (which most private practitioners don't) you can only deduct from your income expenses that you have actually paid out of pocket. You cannot write off monies that have never been received.
For example: Let's say your regular fee is $100 per session. But between the allowed amount of the insurance carrier or managed care company, and the client's co-pay you collect only $50 per session. As far as the IRS is concerned, your income for that session is $50. You cannot claim a loss of what was not collected. Similarly, if the client fails to pay you their $25 co-pay you cannot write this off as a loss.
WHAT ABOUT PRO BONO SERVICES?
As we interpret the IRS rules, the same applies. If you charge zero for a session, there is no loss to deduct, as you did not incur out-of- pocket expenses for goods or services.
For any volunteer work you do (e.g., serve on a Board of Directors, provide supervision to clinicians in training at a local university) you may take a deduction for automobile mileage expenses for doing such work as this is an actual out of pocket expense.
NOTE: The above is not to be considered tax advice. We at TPI encourage you to develop a close working relationship with a tax professional, so you can maximize your income and minimize the amount of taxes owed.