Did you know that more than 10 million people have been caught stealing in the last couple of years?
If you've fallen victim to this criminal act, you need to file a theft loss deduction. This deduction may make it possible for you to receive money back on taxes for some of your losses.
However, like all things with the government, everything you file needs to be submitted in the correct format. Otherwise, you're not guaranteed anything.
In this post, we'll outline some tips to help you properly claim casualty or theft losses. Read on to learn more.
Understand the Difference Between Casualty and Theft
Casualty and theft are both scenarios in which you can claim a loss on your taxes. However, that's where their similarities end.
Theft loss refers to when someone intentionally steals your property. Even with the best shoplifting prevention tips, it can still occur.
Casualty losses, on the other hand, are always unintentional. It refers to when items are broken. Something simple like breaking a jar doesn't make the cut, though.
Usually, casualty losses are reserved for unusual or unexpected circumstances. This may include a fire, flood, or other natural disasters. Other non-nature related causes include car accidents, vandalism, and terrorism.
If you or someone else was negligent, it's likely that you won't receive the deduction for either claim.
When it comes to theft loss, there are a couple of classifications as well. Theft losses can be claimed if you have been a victim of blackmail, robbery, kidnapping, extortion, or embezzlement.
Navigating the deduction and requirements can be tricky, which is why it's more important to prevent theft in the first place. Here's how to design a top-notch security system for your business.
Be Prepared with Proof
If you plan to petition a deduction, you need to have the proof to back up your claim. How can you prove that someone stole something?
If the items were simply misplaced or lost, that's not acceptable for a deduction. Oftentimes, they'll ask for proof that it was actually stolen and not just misplaced. If you have cameras in your store, this can be helpful in finding the proof you need.
The way to prove a theft loss is through a report. You should say on the report that you noticed the items were missing, along with the date and time.
Casualty losses are easier to prove because natural disasters are hard to miss. If the President declares a natural disaster in your area, you'll have a good chance of getting your deduction.
Calculate Your Deduction
The next step in the process is to calculate the fair value of the deduction.
The fair value is considered how much money it would cost to replace the object or how much you could sell it for. However, once you calculate this, you're not finished yet. After calculating the cumulative fair market value, you'll need to subtract any money that your insurance gave you.
If your insurance covers the losses, you are not eligible for a deduction. If there are multiple cases of casualty or loss, you should classify them as such.
Each case may have its own limitations. The limitation is usually $100.
For example, let's say your car is stolen. Your insurance will cover the cost of the car, so you're not allowed to include that in your deduction. However, you are allowed to count all the items that were in your car that didn't get reimbursed.
Let's say you were going to propose and you had a diamond ring in your car before it was stolen. You'll calculate the value of the ring (it's even better if you have the receipt for it).
For simplicity purposes, we'll say that the ring cost $1,000. The rest of the items stolen in your car add up to another $400. The grand total is now $1,400.
You'll subtract $100 from this amount. Now you're at $1,300. You'll do this same procedure for every incident that qualifies for casualty loss.
At the end of the year, you'll add up the amounts from each event and subtract 10% of your income from it. If this was the only incident and you make $10,000 a year, the math would be as follows:
$10,000 x 10%= $1,000
The amount you can deduct on your taxes according to these numbers would be $300.
Receive Your Theft Loss Deduction
Once you understand the math portion of the issue, the rest is just following protocol.
In order to properly receive your theft loss deduction, you'll need to make sure you're using the right form. Form 4684, Casualties and Thefts, is where you will first report and calculate your losses.
After you go through that form, you need to copy the number over to line 40 on a 1040 form. The next step is submitting it to the IRS and waiting to receive your deduction.
Theft and casualty losses are usually best for big-ticket items that you don't have insurance for. Other scenarios might not give you as much money back as you hope.
While you certainly can go through this process every year, there's also another option.
Americans spend 8.9 billion hours on their taxes every year. The average small business owner typically spends the most time jumping through these hurdles.
Are you wasting your time fighting burglaries and tax deductions? Instead of dealing with theft loss and casualty deductions, you should learn how to better protect your most valuable merchandise.
Tax laws are constantly changing. What once qualified as a deduction might not count again next year. It's important to consult with your accountant or tax advisor for the most current tax laws.
In the meantime, don't let your money depend on the whims of the legislative class. Find real solutions to your security problems instead. Check out our loss prevention guide for more helpful tips.
Note: We are not professional accountants. All the information on this blog is for information purposes only and may vary depending on the region, state or industry. We recommend you to contact your CPA for further information on how to properly take a Theft Loss Deduction.