Protect deductions by digitizing receipts, and learn when scam losses may qualify as deductible theft losses under current IRS rules:
- When it comes to IRS audits, one of the most common reasons taxpayers lose deductions is the lack of proper documentation
- If you’re the victim of a scam, can you deduct your losses as a theft loss?
Protect Yourself: Digitize Tax Receipts
When it comes to IRS audits, one of the most common reasons taxpayers lose deductions is the lack of proper documentation.
While your credit card or bank statements prove you spent money, they don’t show what you purchased. Without supporting receipts or invoices, these records are considered “naked”—and during an audit, that’s a problem.
To fully protect your deductions, especially for business-related expenses such as meals, travel, vehicle use, and gifts, you need to keep receipts that document five key facts: the date, the amount, the place, the business purpose, and the business relationship.
The best way to do this is by capturing digital copies of your receipts.
Fortunately, it’s now easier than ever. Using your smartphone, you can snap a photo of your receipt and store it securely using apps such as Shoeboxed, Expensify, Zoho Expense, and others. These tools often let you add notes, categorize expenses, and sync directly with accounting software like QuickBooks or FreshBooks.
Why go digital? Paper receipts fade—especially those printed on thermal paper. Digitizing them ensures they’re legible and accessible when needed, whether for year-end tax preparation or an unexpected audit.
Taking a few seconds now to scan or photograph each receipt can save you time, stress, and potential lost deductions later.
Greed or Goodwill? Your Motive Makes a Scam Loss Deductible
Scams are incredibly common.
According to recent Federal Trade Commission data, consumers reported losing more than $12.5 billion to fraud in 2024. They reported losing more money to investment scams—$5.7 billion—than any other category. Older people are particularly prone to being scammed.
If you’re the victim of a scam, can you deduct your losses as a theft loss? In the past, you often could because losses due to fraud and larceny were deductible theft losses subject to certain limits.
All this changed in 2017 when Congress enacted the Tax Cuts and Jobs Act (TCJA). The TCJA added a new provision to the tax code, providing that from 2017 to 2025, personal theft losses are deductible only if they are attributable to a federally declared disaster. This means almost all theft losses are not deductible at all during these years.
But all is not necessarily lost for fraud victims. Thefts involving business property and those involving transactions entered into for profit are deductible without the need for a disaster. Thefts arising from for-profit activities are deductible as a miscellaneous itemized deduction on Schedule A, not subject to the 2 percent of adjusted gross income floor.
Thus, if you’re the victim of a scam, you can get a theft loss deduction if it arose from a for-profit transaction.
The IRS chief counsel has provided helpful guidance explaining when common scams are deductible. The scams clarified involve victims transferring money from their IRA and non-IRA accounts to scammers, typically overseas.
The IRS chief counsel advised that losses due to compromised account scams, “pig butchering” investment scams, and phishing scams are deductible because the victims of these scams all have a profit motive: earning more investment returns or safeguarding IRA and non-IRA accounts established to earn a profit.
On the other hand, losses due to romance scams or fake kidnapping scams are not deductible as theft losses because the victims voluntarily transferred their money to the scammers out of mistaken love or intending to protect loved ones—which are not profit motives. Their losses were non-deductible personal theft losses.
In short, losses due to scams that rely on the victim’s greed are deductible. Losses from scams that count on the victim’s love or desire to help others are not deductible.
This seems ridiculous, but it is the natural result of the very harsh rule established by the TCJA, which states that personal theft losses are never deductible. The IRS chief counsel tries to ameliorate the harshness of this rule by taking a relatively liberal view of what constitutes a transaction entered into for profit.
Contact your tax and financial advisors to determine the best moves for your situation.