Any accountants out there? If you CHARGE a medical bill

[Gloria]

on a Visa card before Dec. 31, and you pay the Visa bill in 2005, then that bill goes on the 2005 tax year, not 2004, right???

I've will have paid the doctor in 2004...but the charge comes to me i 2005.....

[Inland]

1. I believe the general rule is

it is when the charge is paid. I know my business expenses that are on a card (should be) deducted in the year the statement is paid, not when the charge is made.

[Gloria]

2. That's what I think it is....but I always have to check on it.

eom

[gmoney]

3. I'd say it's when the DOCTOR gets paid

As in, as far as the doctor is concerned, he was paid in 2004.

Now, for my company's medical reimbursement plan, it's based on the date the charge was INCURRED, as in the date of the doctor's appointment or whatever, regardless of when I pay it. If that helps muddy the waters...

[Zomby Woof]

6. That is because many companies use the accrual accounting method

But we personal taxpayers are usually calendar year filers (unless we receive permission to file under the accrual system).

The doctor has the same choice, and to make it easier, will probably use the cash method (aka the calendar year method) and report what he received in 2005 as income for that year.

[jmowreader]

10. I never heard cash method referred to as "calendar year" before

There are two things working here: method and fiscal year reporting.

Method is either Cash or Accrual. Cash method accounting reports money when it is received or disbursed; accrual method reports income when the sale is made and expenses when the bills are received, regardless of when the money goes out.

Example: I sell a truckload of lumber on June 10 to a person who puts it on his commercial account. He pays for it on June 25. I report the sale on June 10.

Personal taxpayers who hold a job in someone else's company don't need to be on the accrual method; the date they earn the money and the date they're paid it are close enough together that accrual wouldn't gain them anything. Not to mention that the Form W-2 is written for the cash-basis taxpayer.

Fiscal year reporting is another thing that comes in for businesses. Many businesses use the anniversary of their opening as the official first day of their fiscal year. Once again, your W-2 is written under the assumption that the first day of your fiscal year is January 1.

[Zomby Woof]

14. It's not really another name - you are correct

But when one uses the cash method, they are so often calendar year filers, that they are nearly synonymous. It is RARE that a regular taxpayer would file under a tax year other than Jan1-Dec31.

Plus, I was speaking only of Schedule A deductions, and not businees expenses and things for more advanced tax law.

So you are right, but I like to use them interchangeably because nearly everyone files calandar year, and to make the deductibility rule simple, I just say "did you pay them by the end of December 31st?" If the answer is yes, then they are deductible, using the cash method.

Oops, I said I would shut up. My rust never sleeps.

[OhioBlue]

15. lol I like you ZombyWoof

I'm glad your posts were so thoght out. It helped me reach my conclusions too. So, we are all agreed that it is when you pay the doc w/ the cc?

Also - don't forget the 1-800 line to the IRS. You may be on hold for a while but they are usually pretty helpful. Well, they used to be.. who knows the hotline may be outsourced to Haliburton by now.

[Zomby Woof]

16. I worked that hotline one season

Trust me, the Treasury Department will NOT outsource those they can abuse right here. :evilgrin:

[OhioBlue]

17. Even w/ * in charge?

Seriously - don't they want to outsource everything? maybe it won't be Haliburton employees - maybe we will be speaking to people in India for our tax advice.

[OhioBlue]

4. Usually stick to the cash basis

I am pretty sure the rule of thumb is to stick to the cash basis of when you pay - not when the expense is incurred. However I'm not sure about the credit card/ pay the statement issue. I would guess when you pay the Doc w/ the CC - but for specific questions - try 1-800-829-1040. When you get the agent on the line, they will give you their ID number. Be sure to record it - b/c if any advice they give is incorrect (which has happened to me) you will have the defense w/ the account of your conversation.

[Zomby Woof]

5. 99.99% of tax payers are calendar year payers

You deduct expenses for the year they are paid, not when they are charged. You can have medical expenses from 1995, and if you paid them in 2004, you are allowed to deduct them.

Because medical expenses are only deductible at the amount exceeding 7.5% of your AGI (and only if you itemize on a Schedule A), it is one expense I don't wish to be deductible on anyone... that means you have ENORMOUS medical expenses. Of course, that is becoming more the norm in these sad times.

I have IRS and professional tax preparer experience, if you have any more questions. I can't promise I know all of it, but I can assure you the answer on this one.

If your check for the VISA is dated no later than 12/31/04 and the envelope is postmarked by midnight 12/31/04, it is considered paid within calendar year 2004.

[OhioBlue]

7. ZombyWoof - I don't discount your advice

at all.... I am just not clear on how a cc payment is recorded. For instance, what if you carry a balance of $1000 in debt? How would the accounting work - how would you know what was paid when if you make the minimum payments? BTW - i am not trying to be sarcastic at all. this is an honest question.

[Zomby Woof]

12. That's a great question

I will qualify this answer by saying it has a GOOD probability of being flawed, and I was trained way back when to ALWAYS research before answering. This is without research, because I am on a slow dial-up ISP.

Since the check written to VISA can't be designated towards any single entity on the bill (even in the instance that the medical charges are the only sources of the balance), that would eliminate the deductibility. I wish I had brought that up in my earlier post. I was sticking to the "method of accounting" rule, and ignored the "what expenses are deductible?" rule. Now I hope you will pardon my lateness on that, and I deeply regret any confusion. The postmark rule stands, but only if the check is DIRECTLY for the incurrer of the expenses - i.e. the doctor or insurance company.

I should have pointed out the rarity, or extreme difficulty, of a credit card payment ever being deductible, unless it is issued by the medical organization itself, for one (e.g., if a hospital issued a VISA, although I am not aware if that is a reality). But a bank is a third-party, and the debt is now between them and the debtor, and that becomes a non-deductible personal debt, and not a medical one. The bank took care of the medical expenses already. The are long ago paid.

I want to emphasize, that the norm for deducting medical expenses is when the actual creditor (the insurance company or doctor's office) is paid directly by the patient, and not a credit card through a bank that paid them immediately.

I apologize again for missing that point in the earlier post. When I advised people on medical expense deductions in real life, the only VISA that ever came up was a debit card, and that is clearly deductible. It was rare anyone could ever meet the 7.5% rule.

I am going to stop with this post so that I forestall any more confusion. Publications are generally viewable on http://www.irs.gov and they are much more helpful than I am. :-)

[udflyersfan]

8. I am a CPA with over 20 years experience...

and I found this on the IRS website (www.irs.gov). It is from Tax Tip 2004-58, March 24, 2004:

"Only contributions actually made during the tax year are deductible. Credit card charges and payments by check are deducted in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year."

Although this applies to contributions, I am sure that the same principle applies to medical expenses. I tried to find something directly related to medical expenses, but couldn't find anything. I will keep trying.

[udflyersfan]

9. The expense is deductible in the year of the charge...

...not when the bill is paid. This is from Publication 17:

"What Expenses Can You Include This Year?

You can include only the medical and dental expenses you paid this year, regardless of when the services were provided. If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. If you use a “pay-by-phone” or “online” account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged. "

[OhioBlue]

11. That is what I was thinking

I am no expert by any means.... i have had several tax classes and my instinct was when you pay the medical charges w/ your credit card. again, refer to my earlier post w/ the phone number if you want specific instruction from the IRS to have in your records.

Also, look at the earlier post that refers to the % of AGI that you need to reach for medical expenses to be deductible. It usually takes a lot to justify itemizing and being able to deduct medical expenses.

[Zomby Woof]

13. THANK YOU!

Pub 17 is the Tax Bible. That clarifies my errors above. It is RARE to be able to deduct a credit card medical expense with the cash method, if at all, but apparently by an accrual loophole, it does away with this difficulty.

That is good to know.