This year’s income tax season is off and running. Did you know your parent’s scam-related losses are usually tax deductible? I didn’t know it either until I started helping Bill, my stepfather, handle the aftermath. The IRS lumps them in with casualties, disasters, and other kinds of losses. Here are some helpful ideas and resources:
I spoke with Bart Stansfield, who is a certified tax preparer and enrolled agent with the IRS. He said they are considered ‘bad debt’ or ’personal losses,’ and this applies even if they used credit card cash advances to send money offshore. Use IRS schedule D, and list the entire amount of the loss on the form. The losses only offset tax liability, so if your Mom or Dad doesn’t file a tax return this won’t help. Your parent can take off up to $3000 per year until the total amount is used up. This could help offset gains from other transactions, like sales of stocks or other assets to replenish cash losses from the fraud or scam.
Here are the documentation requirements:
What will cover all of this? According to the IRS representative I spoke with, filing a police report and/or complaint with your state’s attorney general. As I wrote in my book, I recommend you document everything as you work through scam recovery. I also vigorously encourage filing a police report and a complaint with your attorney general, too. This just adds another reason to take these steps.
Deducting scam losses won’t make up for the pain of the violation and betrayal, and it won’t make your parent’s money reappear. Nevertheless, it may help cushion the financial hit he or she has taken. As always, please remember I’m not a CPA or attorney, so be sure to check with your own tax preparer or accountant for the specifics in your case.
Here’s the link to the IRS publication you’ll need, number 547:
I hope this helps make your recovery journey a little less confusing and overwhelming.
Thanks for reading,