As we gear up for Tax Day – which is on April 18th this year! – we’re doing a series of posts for the small business owners who most frequently come to us with questions. This week, we’re discussing a deduction we hope you won’t need – a tax writeoff for employee theft or embezzlement.
It’s sad but true, employees sometimes steal – and it could happen to you!
But of course, the silver lining is that you do get an extra deduction.
If you had the bad fortune to employ a thief this tax year, here’s what you need to know.
First things first: file a police report. You’ll need the extra documentation in case the IRS asks you to substantiate your claim.
If they stole it, you can deduct it. Blackmail, embezzlement, fraud, extortion, robbery, burglary – it’s all fair game under the IRS’ definition of theft. If your employee has “taken or removed property with the intent to deprive the owner,” that action counts as theft and it’s fair game for a write-off.
You’re entitled to a deduction for the full fair market value of your property, but…. There’s always a “but” with the IRS.
- You can deduct only the amount of loss that was not reimbursed by insurance. (You can’t have your cake and eat it, too.)
- If you claimed depreciation on any of the property in prior tax years, you can only deduct the adjusted (depreciated) value.
- If the property was insured, and you’d previously claimed depreciation on it, but the insurance paid you more than the adjusted value, you’ll have to pay income taxes on that gain…unless you use the extra money to replace the stolen property sometime within the next two years.
Make sure you report theft using the right forms. If your dastardly employee stole money, you’re required to calculate your losses on Form 4684, “Casualties and Thefts.” Then you take the total from that form and enter it on Line 14 of your Form 1040 under “Other gains (or losses)”.
On the other hand, if the villain made off with some other type of property (such as your inventory), you don’t have to use Form 4684. When you fill out your Schedule C, you can just deduct the value of the theft from your closing inventory – increasing your total business expenses and, of course, giving you a larger deduction. But keep in mind that if you go this route, then you cannot also deduct those items on Form 4684. (You’ve got to pick one.)
You can read all about the IRS guidelines for theft deductions in this lovely long document.
If you have any questions about theft deduction, give us a call at 844-841-9857, or schedule a free consultation here.
Getting a notice that you’re facing an IRS audit can be unnerving, to say the least. Last year, 3.8 of every thousand tax returns were audited. An IRS audit is something no one wants to face, but it’s always a possibility. Even if you’ve followed every rule for filing your taxes and think you have accurate returns,...
We have compiled this comprehensive guide to help businesses understand their obligations related to sales tax in the state of Kansas. The guide covers various topics, including what items are subject to sales tax, how to register and file sales tax, and how to collect and remit sales tax. In addition to providing information on...
We’re in an era in which more small businesses are launching like wildfire. Recent studies showed that 17 million new small businesses were expected to launch in a single year. Small businesses are the backbone of the economy. But they’re often more tumultuous, have fewer resources, and are run by less experienced professionals. If you...
April 18 is fast approaching. That’s the official deadline for filing your 2022 federal tax return. As you gather your documents and assemble your information, it’s important to know about recent changes that have occurred. This year, the Internal Revenue Service (IRS) adjusted many of its 2023 tax rules. While you’ll still follow 2022 rules to...
Sales tax is paid to a local or state governing body for the sale of certain services and goods. In Oklahoma, the state sales tax is 4.5%, which is charged on sales of certain services and tangible personal property. Along with the state sales tax, local sales taxes and special district taxes may apply. Business owners...
If you have been struggling to pay the bills or your taxes, you may receive a notice that a garnishment or levy has been placed on your wages or bank account. Even if you make every effort to pay your back taxes, your circumstances may make paying your taxes difficult, such as a job loss...