As a business owner, you’re no stranger to protecting your assets. But outside the walls of your company, personal finances can still be vulnerable, especially with financial scams becoming more sophisticated and widespread. Whether you’ve personally been affected or know someone who has, recent IRS guidance provides a possible path to recoup losses from certain scams.
Why This Matters Now
In a memo released March 2025, the IRS clarified when victims of scams may be able to deduct their losses on their tax return. This is a significant update, particularly in light of current tax law, which largely restricts personal theft loss deductions unless the loss occurred in a federally declared disaster zone.
However, there’s an important exception for losses tied to transactions with a profit motive – and that’s where the new guidance comes into play.
When a Scam Loss Might Be Deductible
If you moved or invested money with the expectation of protecting or growing your financial position – and were later scammed – you may qualify for a theft loss deduction. These situations typically include:
- Transferring retirement or personal savings to what appeared to be a secure account, at the instruction of someone impersonating a bank or government official.
- Investing in what seemed to be a legitimate opportunity with the promise of financial returns.
- Wiring money after being told your financial accounts were compromised.
In each case, the IRS is acknowledging that an intent to preserve or grow income-producing assets reflects a profit motive – and that distinction may allow for a deduction.
Losses That Don’t Qualify
Not every scam meets this threshold. If the situation was personal in nature, like being duped by a fake romantic partner or falling for a false medical or charitable plea, it generally doesn’t qualify for a deduction, even if the emotional toll was just as damaging.
What You Need to Know
- Size doesn’t matter: You don’t have to lose a fortune for the deduction to apply. Smaller losses can still qualify.
- Documentation is critical: Emails, bank statements, transfer records – anything that shows your intent and the nature of the scam – can help support your claim.
- Timing counts: The deduction is typically taken in the year the loss is discovered, not when it occurred.
- Proper filing is required: Use IRS Form 4684 (“Casualties and Thefts”) and attach it to your federal tax return.
Talk to a Tax Professional Early
If you suspect a scam resulted in a financial loss, especially one involving retirement accounts or investments, don’t wait until tax season. Reach out now. Proper reporting and documentation can make all the difference in reducing your tax liability and potentially recovering some of what you lost.
Scams can happen to anyone, regardless of income or experience. While the financial and emotional damage is real, this new IRS guidance offers a small but meaningful step toward recovery.
Need help determining whether your loss qualifies? We’re here to walk you through it.