I work for a clinic that accepts health insurance, but sometimes the insurance doesn't pay and the patient is liable to pay, but the patient doesn't end up paying. This basically means we paid the doctor to perform services for free, and we are keeping track of this number (via aging report) as our billing company has said it can be used as a tax write-off (although I don't know if that's necessarily true).\n\nI think some medical clinics use bad debt to help reduce their taxes. \n\nAs bad debt only counts against your A/R, and you don't get taxed on A/R, how does bad debt help reduce taxable income? Does it count as a charitable deduction?\n\nI feel like calculating A/R would be beneficial (for tax purposes, obviously it's good to know your bad debt amt regardless of whether it can reduce your taxable income) if using accrual-basis accounting. Since companies are allowed to record revenue on their income statement as soon as they have done everything required to earn it, I'm assuming reporting bad debt would be a deduction against income, thereby reducing taxable income.\n\nSince we are using cash basis, I don't see how calculating bad debt will allow us to write off anything on taxes.\n\nMaybe I need a basic accounting lesson, but this is really puzzling me.