How to Write Off Theft for a Business


Periodically, business owners or employees may realize that some of their inventory or product has been stolen. The Internal Revenue Services recognizes the potentially negative financial consequences theft can have on businesses and allows business the chance to write off these losses when filing taxes. Although you are allows to write off theft or losses, be sure that the inventory is actually lost or stolen, as you do not want to risk the chance that you commit tax fraud. Falsely reporting inventory as lost or stolen is considered tax fraud and could subject your business to penalties.

Calculate the adjusted basis in the stolen property. The "basis" is the original cost of the property, reduced by any decrease in value, such as depreciation. Calculate depreciation by dividing the original cost by the product life expectancy. For example, if you bought a desk for $487.65, and the desk's life expectancy is five years. Divide 487.85/5 = 97.53. Each year, the desk depreciates by $97.53.

Subtract from the adjusted basis any salvage value of the property. The salvage value is what someone would pay for the property at the end of the product's life expectancy.

Subtract any reimbursement you received for the stolen product. If you do not, you would technically receive double the benefit on the theft: a tax deduction and a reimbursement. This is prohibited.

Report the loss on IRS forms 4684 and 4797, and attach the forms to your business's tax return for the year (see Resources).

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