Tax Loss Write-off for Crypto Fraud

Every day, there are clients reaching out to us saying they are the victims of crypto
scams. The victims’ loss ranges from $100K to $2M and they need to know if it is
possible to deduct the loss on their tax return and what evidence they should
provide in order to claim the loss. This is a very common request lately and we have
served dozens of similar clients in the last few months alone.

There are several ways that the scam can be reported depending on the
circumstances:

• Casualty fraud/embezzlement loss/ponzi loss
• Capital loss (limit is 3k only) 
• Business loss (in some specific cases)

Even though the current tax law is not explicitly friendly to those victims of crypto scams, you may be eligible to claim a loss deduction in certain cases.

The first step here involves determining what type of deduction you qualify for. Common questions include:

•  Can I deduct the full loss on my return? 
• What characteristics do I need to meet in order to qualify for a full deduction?
• What steps can I take to limit audit risk? What do I need to have in order to defend myself in the case of an audit? 
• Which year can I deduct the fraud loss in? 
• Can I carry over any “unused” deduction in cases where the loss exceeds my annual income? 

Dimov Associates have helped quite a few clients claim the loss on the tax return. If you need help, please feel free to message us at the contact below.