In a medical practice, is the cost of supplies, which is given to patients on site, considered inventory, or an incidental cost? With 2 million in sales the chemotherapy medicine costs about $200,000 per year and there is probably 50,000 on hand at any given time.

ANSWER

The BIDaWIZ Team's Answer:

Generally speaking, chemotherapy supplies associated with a medical practice have been treated as inventory or prepaid expenses. There was a Tax Court case back in 1999 on the matter that ruled in favor of the medical entity that did expense the supplies. However, the favorable ruling was largely the result of the argument on reporting on an accrual basis of accounting. We would not recommend that a practice expense the supplies on hand until they are consumed as is IRS guidance.