How to Write Off Scam Losses: Strategies for Tax Season 2022

As the 2022 tax season approaches, many individuals are facing substantial financial losses due to various scams. One such incident involved the author, who fell victim to a phishing scam and a technical vulnerability that led to the loss of their cryptocurrency. This article will provide insights and strategies for writing off such scams on your tax return.

The Author's Experience in 2022

It's a stark reminder that even experienced professionals can fall for scams. In the last months of 2022, the author of this article fell victim to two separate phishing attempts, resulting in a significant loss of funds. First, a phishing attempt through a fake profile on a decentralized exchange (DEX) group led to the loss of all funds from a wallet after a week of transactions. Then, an outdated browser version opened another door for a scammer, who stole all the funds.

The details of the scam provided valuable insight into how scammers use sophisticated methods, such as contract binding attacks. Always be cautious when engaging in online transactions, even when you are familiar with the environment. Scammers often use social engineering techniques to deceive victims into sharing their private keys.

To prevent similar incidents, avoid giving out your private keys or sensitive information through unauthorized channels. The author advises staying away from unsolicited messengers and forums, and to be wary of any unsolicited messages about NFTs or other financial transactions.

The Current Tax Landscape

The 2022 tax season comes with new challenges, as the Internal Revenue Service (IRS) has issued a warning about a rise in 'IRS impersonation scams.' In these scams, scammers pose as IRS agents in an attempt to steal money or personal information. Identity theft is a common outcome, leading to more severe financial consequences like stolen tax refunds.

Not all personal losses are tax-deductible. According to IRS guidelines, losses from personal events like a house fire, robbery, home burglary, windstorm, or auto accident are generally not deductible. However, if you have experienced a scam and had to write off the loss, you might be eligible to claim it on your tax return under certain circumstances.

Writing Off Scam Losses on Your Tax Return

While scammers often remain anonymous and their locations undetermined, the IRS provides specific criteria for writing off scam losses. These losses are often not covered by insurance or other reimbursements, making them potentially eligible for tax deductions.

To write off a scam loss, you will need to substantiate the incident with proper documentation. This includes:

Proof of the scam (e.g., emails, screenshots) Documentation of any attempts to resolve the scam (e.g., communication with your financial institution) Documentation of any costs incurred as a result of the scam (e.g., fees for identity theft protection) Information about any attempts to recover the loss (e.g., communication with the scammer)

These documents will help you substantiate your claim and provide evidence of the scam's occurrence. Additionally, keep detailed records of all financial transactions and communications related to the scam.

Common Scam Fraud in the Tax Season

Understanding common fraud schemes is crucial to avoid falling victim to them. This tax season, the IRS has identified several common scams, including:

Text-message scams Email schemes Phone scams Unemployment fraud

To protect yourself, stay updated on the latest scam tactics and be cautious of unsolicited messages or calls related to financial matters. Familiarize yourself with the signs of potential scams to avoid compromising your financial security.

Remember, if you have experienced a scam, it's not too late to take action and potentially claim the loss on your tax return. Stay vigilant and follow the recommended steps to document and substantiate your claim.

Conclusion

Scams are a significant threat, and the 2022 tax season is no exception. By understanding the latest scam tactics and following the guidelines provided by the IRS, you can protect yourself and potentially claim losses for tax deductions. Always stay informed and cautious, and never share sensitive information without verifying the identity of the recipient.