Wherever there is money, there are those who are looking to scam you out of that money. From telemarketing scams, to phishing scams, to everything in between, we always have to be aware of those who don’t have our best interest in mind.
While there is plenty of education out there, some people still get swindled. And with good reason: scammers are constantly making their pitch and their game better. So what happens if you get taken advantage of? Assuming you go through the proper methods and you can’t recover your lost cash, can you write off the losses on your taxes? Your accountant in Billings, Montana explains how it works.
Can I Write Off Lost Money?
The short answer is: yes. But there is a little more to it that just writing off the loss as a whole; there are some complicated calculations that go into it. Here’s the formula:
Fair Market Value minus Decreased in Market Value (or $100) minus 10% of your Income.
So how does that look? Let’s suppose you have an adjusted gross income of $50,000. You are swindled out of $10,000. Since the decrease in market value is 100% you use the $100 value. Therefore $10,000 – $100 – $5,000 = $4,900. You can write off $4,900 of your lost money.
Let’s look at this another way. Suppose you have a $10,000 item sitting in your driveway. The neighborhood kids come by and smash it all up leaving it with a scrap value of $2,000. Your insurance declines to cover it for whatever reason, so now you’re sitting on a loss. Fair Market Value ($10,000) – Decreased Market Value ($2,000) – 10% of your income ($5,000) leaves you with an amount of $3,000 that you can write off.
Now to take it a step further, in case you are audited you need to make sure that you have reported the theft or loss to the police. Without a police report, you have no proof that a loss actually occurred.
Have Your Accountant in Billings, Montana Figure it Out
Sound complicated? It is. The IRS likes to make things complicated to reduce fraud. Too many people would be claiming all sorts of losses if it were easier; such as “I dropped $5 while buying ice cream the other day.” You can read up on Topic 515 on the IRS website.
Instead of trying to figure it all out, just bring that information in with the rest of your taxes. As your accountant in Billings, Montana prepares your tax return, he can determine what, if any, of your loss can be written off your tax return.
Practical Taxes is a full service accounting firm in Billings, Montana. If you have already filed your tax return this year, that’s great! We offer so much more than just tax preparation including a whole lineup of business services like payroll and consulting. Call us today at 406-894-2050. to learn more.