Tax Deduction Strategies for Ponzi Scheme Victims

In an age where financial scams, especially those involving cryptocurrency, are an unfortunate reality, taxpayers often find themselves struggling with the consequences. These crypto con artists continuously innovate their strategies to access and exploit your financial information. When tax season rolls around, the individuals who have fallen prey to these scams are left in dismay, trying to untangle the mess left behind.

Understanding Your Tax Deduction Rights

Thankfully, the IRS allows you to lower your taxable income with deductions if you’ve lost money to scams.

• Special Relief for Ponzi Scheme Victims: The IRS offers targeted relief for those defrauded by Ponzi schemes. Victims can write off their financial losses as theft losses rather than as capital losses from bad investments.
• 95% Rule Under Rev. Ruling 2009-20: If you are a victim of a Ponzi scheme and decide not to seek recovery through third parties, you can deduct 95% of your qualified investment, which is the amount you invested and lost in the scheme, minus any potential recoveries you have already received.
• Partial Deductions with Third-party Recovery: If you’re trying to get some of your lost money back with the help of a third party, you may still be able to deduct 75% of your unrecovered losses.
• No Cap on Theft Loss Deductions: Unlike the $3,000 annual limit for capital losses from investments, theft losses have no such ceiling, which can significantly increase your deductible amount.
• Claiming Losses Under IRC § 165(e): If you’ve lost money in a Ponzi scheme, you can claim it as a theft loss as per IRC § 165(e), but only if there’s no hope of getting the money back.
• Deductibility Timing: You can deduct theft losses in the year you discover the fraud, as long as you don’t have any pending claims or chances to recover the funds from the fraudster.
• Carrying Forward Excess Losses: If your financial hit was bigger than your income for the year, you can carry over the leftover loss to the next year, which can help reduce future tax bills.

Please remember that documentation is essential for claiming such deductions, and it’s important to keep meticulous records including bank statements, police reports, and any details of the scam and the perpetrators involved.

Tax Season and Scam Losses

When you’re managing the impact of financial scams at tax time, it’s important to understand that any relief provided is in the form of lower taxes owed, not as a direct repayment of the lost money. The tax code is designed to ease your financial load by minimizing or eliminating the taxes on the amount you’ve lost, resulting in a potentially larger tax refund that could assist in repairing your financial health.

Contact Us Today

Scams have become an increasingly tricky part of dealing with money, and with each passing year, more people are getting caught in these schemes. Advances in technology have unfortunately made it simpler for these scammers to do their dirty work. Yet, with our support, you have the power to fight back against the consequences of scams and take smart steps to stop them from damaging your finances in the first place. Contact us today for tailored solutions to protect and maximize your investments.