Bookkeeping
Bookkeeping for doctors and medical practices: receivables, cash vs accrual, staff and 1099s
How bookkeeping works for a physician practice: when insurance and patient payments count as income under the cash and accrual methods, which practices can use the cash method, what an office of physicians employs and pays, and the 2026 Form 1099 rules.
Prepared by Aldro Accounting · Updated · Sources checked
The quick answer
Bookkeeping for a medical practice is mostly about receivables from insurers and patients, staff costs and information returns. Under IRS Publication 538, a cash-method practice reports income when it is actually or constructively received and can't hold checks into the next year to delay tax, while an accrual-method practice reports income when it is earned. For 2026, health and accident insurance plans report payments of $2,000 or more to a physician or physicians' corporation on Form 1099-MISC.
Why bookkeeping matters for a medical practice
The Bureau of Labor Statistics notes that good recordkeeping and other administrative skills are critical for physicians and surgeons in both medical and business settings. In clinical settings, physicians may work in a group practice or healthcare organization, which gives them less independence than solo practitioners have.
Scroll sideways to see all columns.
| Specialty | Median annual wage |
|---|---|
| Pediatric surgeons | $559,030 |
| Cardiologists | $496,010 |
| Radiologists | $420,860 |
| Anesthesiologists | $391,490 |
| Orthopedic surgeons, except pediatric | $358,550 |
| Dermatologists | $328,730 |
| General internal medicine physicians | $256,560 |
| Family medicine physicians | $244,180 |
| General pediatricians | $210,040 |
Physicians and surgeons held about 862,800 jobs in 2025. Their median annual wage was $275,930 in May 2025. The lowest 10% earned less than $76,560 and the highest 10% more than $488,320.
A practice's books follow its money: insurance reimbursements and patient payments coming in, and payroll, supplies, equipment and outside services going out. The tax rules below decide when each of those lands on the return.
Patient and insurance receivables: cash vs accrual
Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the year you pay them. Under the accrual method, you report income in the year you earn it, regardless of when payment arrives, and deduct or capitalize expenses in the year they are incurred.
Cash-method income includes amounts constructively received. Income is constructively received when it is credited to your account or made available to you without restriction, even if you don't have it in hand. You can't hold checks from one tax year to the next to postpone the tax. If you authorize an agent to receive income for you, you are treated as receiving it when the agent does.
Under the accrual method, income is generally included in the year the all events test is met: when all events have occurred that fix your right to receive it and the amount can be determined with reasonable accuracy.
Accounts receivable are not inventory. IRS Publication 538 also leaves land, buildings and equipment used in the business out of inventory, along with supplies that don't physically become part of an item for sale.
Which practices can use the cash method
Most individuals and many small businesses use the cash method. A C corporation, a partnership with a C corporation partner and a tax shelter generally can't, unless an exception applies. A corporation or partnership that isn't a tax shelter can generally use it if its average annual gross receipts for the 3 prior tax years meet the gross receipts test, which Publication 538 gives as $26 million or less, indexed for inflation.
A medical corporation can also qualify as a qualified personal service corporation (PSC), which can use the cash method. It must pass two tests:
- Function test: at least 95% of its activities are services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts or consulting
- Ownership test: substantially all of its stock is owned, directly or indirectly, at all times during the year by employees performing those services, retired employees who performed them, their estates, or for 2 years after death, people who inherited the stock
Prepaid expenses, tax years and method changes
An expense paid in advance is deductible only in the year it applies to, unless it qualifies for the 12-month rule. Under that rule, a taxpayer doesn't have to capitalize amounts paid for rights or benefits that don't extend beyond the earlier of 12 months after the benefit begins or the end of the tax year after the year of payment.
To change an overall accounting method, such as cash to accrual, or the treatment of a material item, you generally file Form 3115 with the IRS.
A personal service corporation must use a calendar tax year unless it makes a section 444 election or another exception applies.
Who an office of physicians employs, and what they earn
In May 2023, offices of physicians (NAICS 621100) employed 2,842,350 people across all occupations, with a median hourly wage of $26.37 and an annual mean wage of $100,420. The back-office roles that handle billing and the books are a small slice of that.
Form 1099s a medical practice sends and receives
- Threshold: for tax years beginning after 2025, the minimum for reporting certain payments and for backup withholding rose from $600 to $2,000, with inflation adjustments starting in calendar year 2027
- Insurance payments: Form 1099-MISC reports payments of $2,000 or more to a physician, physicians' corporation or other supplier of health and medical services, issued mainly by medical assistance programs and health and accident insurance plans. Medical and health care payments are reported even when paid to a corporation
- Card and app payments: a third-party settlement organization files Form 1099-K only when a payee has over $20,000 in payments and over 200 transactions in a calendar year
- Outside services the practice pays for: payments for services by non-employees are reported on Form 1099-NEC. Collect Form W-9 and use the IRS TIN Matching e-service to check names and TINs before filing
- E-filing: a practice required to file 10 or more information returns in a year must e-file, counting all form types together. From tax year 2026, filing season 2027, IRIS is the only IRS e-file system for information returns, and a Transmitter Control Code may take up to 45 days
- Extensions: Form 8809 gives an automatic 30-day extension for most information returns if filed by the due date, but none is available for Form W-2 or Form 1099-NEC
- Records: keep copies of filed information returns for at least 3 years from the due date, or 4 years if federal or backup withholding was imposed
Keeping the books monthly
Reconciling deposits from insurers, patient payments and card processors against the bank each month is what makes the year-end cash or accrual figures reliable. Aldro's bookkeeping covers unlimited bank and card accounts, monthly reconciliation and statements, and the flat yearly tax price covers everything tax for the practice, including the 1099s it files. Payroll processing isn't included.
Worked example
Say a calendar-year solo practice bills insurers $40,000 for visits in December 2026. Insurers pay $25,000 by direct deposit in December and the other $15,000 in January 2027. A $3,000 patient check for December visits arrives December 28 and sits in a drawer until January. On the cash method, 2026 income from these items is $25,000 + $3,000 = $28,000: the check was received in 2026, and holding it doesn't move it to 2027. The $15,000 is 2027 income. On the accrual method, the $40,000 billed is 2026 income once the practice's right to it is fixed and the amount can be determined with reasonable accuracy, and the $3,000 for December visits is 2026 income too. Separately, if one health insurance plan paid this physician $2,000 or more during 2026, that plan reports it on Form 1099-MISC.
Common questions
Can a medical practice use the cash method?
Often, yes. Individuals and S corporations generally can. A C corporation can if it is a qualified personal service corporation (at least 95% of activities in health or another listed field, and substantially all stock owned by employees) or meets the gross receipts test.
Can a doctor's office hold insurance or patient checks until January?
Not to delay tax. Under the cash method, income counts when it is received or made available without restriction, and Publication 538 says you can't hold checks from one tax year to another to postpone paying tax.
Do insurers send doctors a Form 1099?
Yes. Medical assistance programs and health and accident insurance plans report payments of $2,000 or more to a physician or physicians' corporation on Form 1099-MISC, even when the practice is a corporation.
What is the 1099 reporting threshold for medical practices in 2026?
$2,000 for tax years beginning after 2025, up from $600, with inflation adjustments starting in 2027.
Are medical equipment and patient receivables inventory?
No. Publication 538 excludes equipment used in the business, accounts receivable and supplies that don't become part of an item for sale from inventory.
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Sources
- BLS: Physicians and surgeons (Occupational Outlook Handbook) · checked October 31, 2026
- BLS: OEWS, Offices of Physicians (NAICS 621100), May 2023 · checked October 31, 2026
- IRS: Publication 538, Accounting Periods and Methods · checked October 31, 2026
- IRS: Publication 1099 (2026) · checked October 31, 2026
This guide explains general rules from the sources listed. It isn’t tax advice for your situation.