I noticed while looking for some help online a number of doctors, dentists and councelors do a “Sliding scale” based on income.
Are these professionals reimbursed by anyone or is it just charitable of them. Or do they get to take the difference off their taxes. Like one doctor normally charges $75.00 an office visit, but he’ll go as low as $10.00 if you qualify income-wise.
I was just wondering if it was true charity or are they getting tax breaks or reimbursed?
I am somewhat familiar with how a non-profit counseling agency works. From the ones I have seen, they appear to survive by putting together a variety of government grants and contracts (local, state, federal- whatever they can get their hands on). Depending on the grant, the counseling could be sliding scale, low cost, or no cost- with payroll and other overhead paid for by the grants.
When I was starting out in the biz, I worked at an agency where United Way would pay for a certain number of client’s residential treatment. Their instructions were that the client got to name their own price- like Price-line. If they wanted to pay $900 a week (aprox. usual price) or 1 penny a week, it was OK.
A professional who’s in private or independent practice and offers a sliding scale or low-fee slots is doing so at a financial loss. We can’t take it off our taxes or get any reimbursement. I can’t speak for other professions, but psychologists are strongly encouraged to provide some low-fee or pro bono services. This might mean therapy, or supervision for therapists in training, or voluntarism in a professional capacity, or taking on some low-fee work, or offering uncompensated trainings or talks.
For example, I teach at two schools. This is most of my employment. I also have a small private practice, where at the moment 50% of clients pay my full fee, 25% pay a reduced fee because their insurance has a cap lower than my full fee and a proviso that I not charge them a higher co-pay, and 25% pay nothing. I also volunteer in three professional organizations, and make free professional presentations and trainings fairly frequently. A year or so ago, I provided ongoing consultation to a medical/psychological support group through a clinic that serves people without the economic resources to meet their medical needs. I say this not to brag but because I think it’s pretty typical. A number of psychologists in my community do at least several of these. It’s a form of professional altruism.
In addition, training sites (such as a dentistry internship) may offer low-fee slots, as may a non-profit or an agency that’s received grants to provide low-cost services.
Well actually you do get to take it off your taxes the same way anyone else who makes a charitable contribution does – in fact you get to do it better. If you normally would charge $1000 for some service and only charge $400, you can think of it as $1000 in income and a $600 charitable deduction.
It’s actually better than a $600 charitable deduction since it’s not subject to the alternate minimum tax or any other limitation that a cash charitable deduction would be subject to.
At least as of 2002 (which is the most recent tax guide I have at home), according to J. K. Lasser,
I’ll be looking at this year’s tax guides next month, so if I’m wrong about this I would dearly love a cite! I donate several thousand dollars’ therapy a year, plus around $10,000 in other professional services at my standard hourly rate, and my partner’s service donation is even higher.
Okay, this is what happens when I have to get up early.
Publication 526, December 2005 revision, Charitable Contributions
This current tax document appears to confirm my earlier statement. There’s even a little narrative on p. 5:
Page 6 itemizes very specific non-deductible actions and expenses, including “the value of your time or services.”
Again, if I’m missing something I’d be delighted to know about it.
Can your business take this as a deduction instead? Is it a matter of how you operate your business?
I think that OldGuy’s comment was a tongue-in-cheek way of saying that donations of services are effectively already 100% tax-deducted, since no income was generated and taxed in order to provide the donation.
Take a professional service provider who charges $1000 for services to a client, and lets make the client a charity. Then, imagine that the provider makes a $1000 cash donation to the same charity. That $1000 donation is (usually) tax-deductible, because it took more than $1000 of income to earn the $1000 donated. If the provider’s relevant tax rate on income is 25%, it took $1250 to earn the $1000 donated, so by making the $1000 tax-deductible, it all comes down to a neat “zero-sum” situation.
If the provider donates the service, no income is generated, therefore no tax liability or tax paid, so there’s no tax deduction involved. Again a zero-sum situation.
Now, a sliding-scale service can be viewed as a mixture of “service paid at full rate” and “donated service”. In OldGuy’s example, the nominally-$1000 service was charged at $400; this is of course liable to taxation. The $600 that was never charged never existed. It was not taxed, therefore cannot be part of a calculation for tax-deductibility. The “missing $600” is a bit like the infamous “missing dollar” that shows up frequently in GQ.
If the IRS allowed the “donated service” to be tax-deductible, service providers could immediately (for example) double their quoted full-scale fees, offer “50% sliding-scale discounts” to all of their clients, and claim the other 50% to the IRS as tax-deductible. [$2000 full fee, 50% discount so $1000 charged, paid and tax-liable, the “other $1000” claimed as tax-deductible, net taxable income $0. Whoopee! – except for the lost revenue to the IRS].
I think that’s what Old Guy meant. If not, my apologies to all.
No.
**Antonius Block, **you may be right about **OldGuy’s **post, but I thought I’d better clarify my answer.
Exactly.
That’s exactly what I meant.
I had a friend and what she did was take overflow. The county government provided therapy at a reduced charge. The government granted the county grants and allotments for charity service. BUT if the wait time was too long, the county would refer the client, who came to the county office, to her and the county paid her, so she was getting reimbursed by the county.
Just out of curiosity, could a dentist deduct the cost of the cost of filling or the actual physical materials used on a sliding fee or charity case?
I believe that the answer is yes, and that she could deduct her mileage if she were providing the service at an address other than her office.