Have you made arrangements for your pets in your estate plan?
May 22, 2025
For many people, pets are more than just animals — they’re cherished members of the family. Yet, when it comes to estate planning, their future care can be overlooked.
Including your pets in your estate plan ensures they’ll continue to receive love and care if something happens to you. Unless you arrange for their care and support after your death, they’ll go to the residuary beneficiary in your will. If you don’t have a will, they’ll be transferred according to the laws of intestate succession, which are unique to each state.
Formally appoint a caregiver
Start by identifying a trusted family member or friend who’s willing and able to take responsibility for your pets. You can formalize this by naming the person as the caregiver in your will.
Although you can’t use your will to leave money or other property to your pets, you can provide funds to their caregiver to cover expenses. But keep in mind that the caregiver has no legal obligation to use the money for your pets, so choose cautiously.
It’s wise to name a backup caregiver, just in case. Also, be sure to let your executor know about your plans. If you don’t have a trusted caregiver in mind, another option is to leave your pets to an animal sanctuary or rescue organization with a program designed for this purpose.
Draft a pet trust
You might also consider establishing a pet trust. It’s legal in all 50 states plus Washington, D.C. These trusts come at a cost, but they offer several advantages over other arrangements.
For example, a pet trust allows you to leave money that the named caregiver is required to use for your pets, to provide specific instructions on how your pets should be cared for, and to provide for the care of your pets during your life in the event you’re unable to do so. Plus, if necessary, your representative can go to court to enforce the terms of the trust.
Turn to us for help
Ultimately, including your pet in your estate plan gives you peace of mind and ensures that your beloved companion won’t be left to chance. Your estate planning attorney can help you incorporate these provisions into your estate plan in a way that aligns with your overall goals.
© 2025
Creating a marketing strategy for any company isn’t a “one and done” activity. As you’ve no doubt experienced, the approach you use to connect with your audience needs to adapt to factors such as the economy, marketplace changes, and customer and prospect preferences. Let’s take a step back and review some of the big-picture tasks associated with sharpening your marketing strategy. Refine target selection Consider each prospect, existing customer and target group as an investment. Estimate your net profit after subtracting production, sales and customer service costs. More desirable customers will buy in sizable volumes with enough frequency to provide a steady income stream over time rather than serve as one-time or infrequent buyers. They’ll also be potential targets for cross-selling other products or services to generate incremental revenue. Bear in mind that you must have the operational capacity to fulfill a prospect’s demand. If not, you’ll need to expand your operations to take on that customer, which will cost you more in resources and capital. Also, be wary of becoming too dependent on a few large customers. They can use this status as leverage to lowball you. Or, if they decide to pull the plug, it could be financially devastating. Adjust price points Your price points are another key factor. It’s a tricky balance: Setting prices low may help attract customers, but it can also minimize or even eliminate your profit margin. In addition, think about what payment terms you’re prepared to offer. Sluggish accounts receivable can strain cash flow. Establishing a timely payment schedule with customers is critical to sustaining operations and supporting the bottom line. If you must spend a substantial amount of cash to set up a new customer, such as buying new equipment, consider offering initial pricing that includes a surcharge for a specified period. After you’ve recovered the cost of the equipment plus carrying charges, you might offer the customer a volume- or loyalty-based discount. Craft your messaging When you know who you want to sell to and what you’re going to charge, it’s time to craft your messaging. This is obviously the key step — literally marketing your products or services. So, clarity and consistency are key. Begin by identifying your core value proposition. This is what sets your business apart from competitors. Communicate it in simple, direct language. Generally, you want to avoid jargon unless you’re working in a very specific context where industry terminology or technical knowledge is critical to sales. Be persuasive by providing remedies for your audience’s pain points. You may need to tailor messaging to different market segments. For example, established customers usually respond best to a marketing message that reminds them of your company’s reliability and the total value of your mutually beneficial relationship. Meanwhile, prospects and newer customers probably need more persuasion and “proof of value.” Carefully choose the right marketing channels as well. These may include print, email, social media and in-person outreach. Finally, watch out for inconsistency. Even if you vary your exact wording when addressing different market segments, your overall messaging needs to be uniform in look, tone and details. Disjointed communication — especially when it comes to things like pricing and product or service specifications — can sink a marketing strategy fast. Today and tomorrow An ineffective approach to marketing can quietly sap a company’s financial strength as sales leads diminish in number or value and competitors gain more attention in the marketplace. Conversely, a strong and timely marketing strategy can be a real revenue driver. We can analyze your marketing costs, as well as your price points, and help you develop a viable strategy for today and tomorrow. © 2025
The gig economy offers flexibility, autonomy and a way to earn income, but it also comes with tax obligations that can catch many workers off guard. Whether you’re driving for a rideshare service, delivering food, selling products online or offering local services like pet walking, it’s crucial to understand the tax implications of gig work to stay compliant and avoid costly surprises. Understanding your tax status One of the biggest differences between traditional employment and gig work is your classification. Most gig workers are considered independent contractors, not employees. This means that companies you work with typically don’t withhold income taxes, Social Security, or Medicare taxes from your pay. Instead, you’re responsible for tracking and paying these taxes yourself. As an independent contractor, your earnings are considered self-employment income. This status has specific tax consequences and responsibilities, including the need to file Schedule C (Profit or Loss from Business) with your tax return and pay self-employment tax using Schedule SE. Self-employment tax explained Self-employment tax covers Social Security and Medicare taxes for those who work for themselves. In 2025, the self-employment tax rate is 15.3% — 12.4% for Social Security and 2.9% for Medicare. If your net earnings exceed $400 for the year, you’re required to pay this tax, regardless of your age or whether you receive Social Security benefits. It’s important to note that while this may seem steep, self-employed individuals can deduct half (the employer-equivalent portion) of the self-employment tax from their taxable income, which helps offset the burden. Quarterly estimated tax payments Because taxes aren’t automatically withheld from your gig income, you may need to make estimated tax payments to the IRS. These payments are due April 15, June 15, September 15 and January 15 of the following year. (If a due date falls on a Saturday, Sunday or holiday, the due date becomes the next business day.) Failing to pay enough throughout the year could result in penalties and interest, even if you end up getting a refund at tax time. To avoid this, we can help you calculate your estimated tax payments based on your expected income, deductions and credits. Recordkeeping and deductions Maintaining accurate records is essential for gig workers. Keep track of all your income, whether you receive Form 1099-NEC from your customers or not. Many platforms only issue 1099s if you earn $600 or more from them, but all income must be reported, regardless of whether you get a form. On the plus side, gig workers can deduct many business-related expenses to reduce their taxable income. Common deductions include eligible: Vehicle mileage and maintenance expenses, Home office expenses, Advertising and marketing expenses, and Professional services expenses, such as for tax or legal advice. Make sure you keep receipts and records to substantiate these deductions in case of an IRS audit. State and local taxes Don’t forget about state and local taxes. Depending on where you live, you may owe income taxes to your state or city. Some states also have specific requirements for self-employed individuals, such as business licenses or local tax filings. Tips for staying compliant To stay on top of your tax responsibilities, here are four tips to consider: Set aside 25%–30% of your income for taxes. Use accounting software or spreadsheets to track income and expenses. File taxes on time, and don’t ignore IRS correspondence. Consult with us to help you navigate complex deductions and ensure accuracy. Plan ahead for the best results While the gig economy offers many benefits, it also comes with tax responsibilities that workers need to manage proactively. By understanding your obligations, tracking your earnings and expenses and making timely payments, you can avoid penalties and keep more of what you earn. Planning ahead will help ensure your gig work is both profitable and compliant. © 2025
Many businesses turn to independent contractors to help manage costs, especially during times of staffing shortages and inflation. If you’re among them, ensuring these workers are properly classified for federal tax purposes is crucial. Misclassifying employees as independent contractors can result in expensive consequences if the IRS steps in and reclassifies them. It could lead to audits, back taxes, penalties and even lawsuits. Understanding worker classification Tax law requirements for businesses differ for employees and independent contractors. And determining whether a worker is an employee or an independent contractor for federal income and employment tax purposes isn’t always straightforward. If a worker is classified as an employee, your business must: Withhold federal income and payroll taxes, Pay the employer’s share of FICA taxes, Pay federal unemployment (FUTA) tax, Potentially offer fringe benefits available to other employees, and Comply with additional state tax requirements. In contrast, if a worker qualifies as an independent contractor, these obligations generally don’t apply. Instead, the business simply issues Form 1099-NEC at year end (for payments of $600 or more). Independent contractors are more likely to have more than one client, use their own tools, invoice customers and receive payment under contract terms, and have an opportunity to earn profits or suffer losses on jobs. Defining an employee What defines an “employee”? Unfortunately, there’s no single standard. Generally, the IRS and courts look at the degree of control an organization has over a worker. If the business has the right to direct and control how the work is done, the individual is more likely to be an employee. Employees generally have tools and equipment provided to them and don’t incur unreimbursed business expenses. Some businesses that misclassify workers may qualify for relief under Section 530 of the tax code, but only if specific conditions are met. The requirements include treating all similar workers consistently and filing all related tax documents accordingly. Keep in mind, this relief doesn’t apply to all types of workers. Why you should proceed cautiously with Form SS-8 Businesses can file Form SS-8 to request an IRS determination on a worker’s status. However, this move can backfire. The IRS often leans toward classifying workers as employees, and submitting this form may draw attention to broader classification issues — potentially triggering an employment tax audit. In many cases, it’s wiser to consult with us to help ensure your contractor relationships are properly structured from the outset, minimizing risk and ensuring compliance. For example, you can use written contracts that clearly define the nature of the relationships. You can maintain documentation that supports the classifications, apply consistent treatment to similar workers and take other steps. When a worker files Form SS-8 Workers themselves can also submit Form SS-8 if they believe they’re misclassified — often in pursuit of employee benefits or to reduce self-employment tax. If this happens, the IRS will contact the business, provide a blank Form SS-8 and request it be completed. The IRS will then evaluate the situation and issue a classification decision. Help avoid costly mistakes Worker classification is a nuanced area of tax law. If you have questions or need guidance, reach out to us. We can help you accurately classify your workforce to avoid costly missteps. © 2025
One question the family of a deceased person often asks is: What happens to debt after a person dies? It’s important to realize that a person’s debt doesn’t simply vanish after his or her death. An estate’s executor or beneficiaries generally aren’t personally liable for any debt. The estate itself is liable for the deceased’s debt. This is true regardless of whether the estate goes through probate or a revocable (or “living”) trust is used to avoid probate. Contrary to popular belief, assets held in a revocable trust aren’t shielded from creditors’ claims. Assets and debts Generally, an estate’s executor is responsible for managing the deceased’s assets and debts. A personal representative can also carry out this task. With respect to debt, the executor should take inventory of the deceased’s debts, evaluate their validity and order of priority, and determine whether they should be paid in full or allowed to continue to accrue during the estate administration process. In some cases, debt that’s tied to a particular asset — a mortgage, for example — may be assumed by the beneficiary who inherits the asset. Certain assets are exempt, however. These include most retirement plan accounts, life insurance proceeds received by a beneficiary and jointly held property with rights of survivorship that passes automatically to the joint owner. Also, assets held in certain irrevocable trusts, such as domestic asset protection trusts, may be shielded from creditors’ claims. The extent of this protection depends on the type of trust and applicable law in the jurisdiction where the trust was created. Assuming the deceased had a will, the estate’s assets generally are used to pay any debts in this order: Assets that pass under the will’s residual clause — that is, assets remaining after all other bequests have been satisfied, Assets that pass under general bequests, and Assets that pass under specific bequests. Note that some states have established homestead exemptions or family allowances that prohibit the sale of certain assets to pay debts. These provisions are designed to give a deceased’s loved ones a minimal level of financial security in the event the estate is insolvent. When debts are greater than the estate’s value If an estate’s debts exceed the value of its assets, certain debts have priority and the estate’s executor must pay those debts first. Although the rules vary from state to state, a typical order of priority is: Estate administration expenses (such as legal and accounting fees), Reasonable funeral expenses, Certain federal taxes or obligations, Unreimbursed medical expenses related to the deceased’s last illness, Certain state taxes or obligations (including Medicaid reimbursement claims), and Other debts. Secured debts, such as mortgages, usually aren’t given high priority. This is because the recipient of the property often assumes responsibility for the debt and the creditor can take the collateral to satisfy its claim. Seek professional guidance Managing debt in an estate can be complex, especially if the estate is insolvent. If you’re the executor of an estate, consult with us. We can help guide you through the process. © 2025
Today’s businesses have two broad choices regarding cybersecurity: wait for something bad to happen and react to it, or proactively address the threat. Not surprisingly, we recommend the latter approach. The grim truth is cyberattacks are no longer only an information technology (IT) issue. They pose a serious risk to every level and function of a business. That’s why your company should take a holistic approach to cybersecurity. Let’s look at a few ways to put this into practice. Start with leadership Fighting the many cyberthreats currently out there calls for leadership. However, it’s critical not to place sole responsibility for cybersecurity on one person, if possible. If your company has grown to include a wider executive team, delegate responsibilities pertinent to each person’s position. For example, a midsize or larger business might do something like this: The CEO approves and leads the business’s overall cybersecurity strategy, The CFO oversees cybersecurity spending and helps identify key financial data, The COO handles how to integrate cybersecurity measures into daily operations, The CTO manages IT infrastructure to maintain and strengthen cybersecurity, and The CIO supervises the management of data access and storage. To be clear, this is just one example. The specifics of delegation will depend on factors such as the size, structure and strengths of your leadership team. Small business owners can turn to professional advisors for help. Classify data assets Another critical aspect of cybersecurity is properly identifying and classifying data assets. Typically, the more difficult data is to find and label, the greater the risk that it will be accidentally shared or discovered by a particularly invasive hacker. For instance, assets such as Social Security, bank account and credit card numbers are pretty obvious to spot and hide behind firewalls. However, strategic financial projections and many other types of intellectual property may not be clearly labeled and, thus, left insufficiently protected. The most straightforward way to identify all such assets is to conduct a data audit. This is a systematic evaluation of your business’s sources, flow, quality and management practices related to its data. Bigger companies may be able to perform one internally, but many small to midsize businesses turn to consultants. Regularly performed company-wide data audits keep you current on what you must protect. And from there, you can prudently invest in the right cybersecurity solutions. Report, train and test Because cyberattacks can occur by tricking any employee, whether entry-level or C-suite, it’s critical to: Ensure all incidents are reported. Set up at least one mechanism for employees to report suspected cybersecurity incidents. Many businesses simply have a dedicated email for this purpose. You could also implement a phone hotline or an online portal. Train, retrain and upskill continuously. It’s a simple fact: The better trained the workforce, the harder it is for cybercriminals to victimize the company. This starts with thoroughly training new hires on your cybersecurity policies and procedures. But don’t stop there — retrain employees regularly to keep them sharp and vigilant. As much as possible, upskill your staff as well. This means helping them acquire new skills and knowledge in addition to what they already have. Test staff regularly. You may think you’ve adequately trained your employees, but you’ll never really know unless you test them. Among the most common ways to do so is to intentionally send them a phony email to see how many of them identify it as a phishing attempt. Of course, phishing isn’t the only type of cyberattack out there. So, develop other testing methods appropriate to your company’s operations and data assets. These could include pop quizzes, role-playing exercises and incident-response drills. Spend wisely Unfortunately, just about every business must now allocate a percentage of its operating budget to cybersecurity. To get an optimal return on that investment, be sure you’re protecting all of your company, not just certain parts of it. Let us help you identify, organize and analyze all your technology costs. © 2025
If you’ve recently received a settlement or award from a lawsuit, or you’re expecting one, you may be wondering how the IRS views this money. Will you need to pay taxes on it? The short answer: It depends on the type of damages you received. Understanding the basic rules can help you avoid surprises. Taxable vs. nontaxable awards Not all lawsuit settlements or awards are treated the same under federal tax law. Generally, the IRS breaks them into two categories: Taxable. Awards for lost wages, lost profits, breach of contract and most punitive damages are taxable. For example, punitive damages and awards for unlawful discrimination or harassment are taxable. If you receive compensation for back pay or unpaid wages, the IRS treats it just like income you earn on the job. It’s subject to both income and employment taxes. Also taxable are damages for emotional distress without a physical injury. Nontaxable. Settlements for personal physical injuries or physical sickness are typically excluded from income, meaning you don’t owe taxes on them. However, the injury must be physical (such as a broken bone or illness), not emotional. Special considerations and reporting rules It’s important to recognize that even when part of a settlement is nontaxable, other parts might not be. For example, a case involving both physical injury and lost wages will likely result in mixed tax treatment. Attorneys’ fees are another area that can trip recipients up. Even if your lawyer is paid directly out of your settlement, you’re generally taxed on the full amount before fees are deducted. This means you may owe tax on money you never actually receive. Settlements related to emotional distress or defamation are taxable unless they’re tied to physical harm. And punitive damages are almost always taxable, regardless of the type of case. Why professional help matters Navigating the tax consequences of a lawsuit award can be tricky. In many cases, the settlement agreement will play a key role in determining how the IRS classifies the payment. How damages are described in the settlement can have an impact on your tax bill. For example, it’s helpful to specify which portion of a split settlement is for physical injuries versus emotional distress or lost wages. In negotiating a settlement, it may be possible to stipulate that an award is for physical injuries, rather than emotional, and thus is nontaxable. Without professional guidance, you could miss opportunities to minimize your tax liability or, worse, end up underreporting income. We can help you: Review a settlement agreement for tax implications, Determine how much of your award is taxable, Understand when estimated tax payments might be necessary, and Ensure you report everything accurately on your tax return. Final thoughts While winning or settling a lawsuit or legal claim can bring financial relief, it can also bring tax complexities. Don’t assume that all settlement money is tax-free or that the IRS won’t notice. You want to stay compliant, avoid surprises and make the most of your award. Contact us if you’ve recently received a settlement, award or judgment or you’re expecting one. © 2025
Even well-run companies experience down years. The federal tax code may allow a bright strategy to lighten the impact. Certain losses, within limits, may be used to reduce taxable income in later years. Who qualifies? The net operating loss (NOL) deduction levels the playing field between businesses with steady income and those with income that rises and falls. It lets businesses with fluctuating income to average their income and losses over the years and pay tax accordingly. You may be eligible for the NOL deduction if your deductions for the tax year are greater than your income. The loss generally must be caused by deductions related to your: Business (Schedules C and F losses, or Schedule K-1 losses from partnerships or S corporations), Casualty and theft losses from a federally declared disaster, or Rental property (Schedule E). The following generally aren’t allowed when determining your NOL: Capital losses that exceed capital gains, The exclusion for gains from the sale or exchange of qualified small business stock, Nonbusiness deductions that exceed nonbusiness income, The NOL deduction itself, and The Section 199A qualified business income deduction. Individuals and C corporations are eligible to claim the NOL deduction. Partnerships and S corporations generally aren’t eligible, but partners and shareholders can use their separate shares of the business’s income and deductions to calculate individual NOLs. What are the changes and limits? Before the Tax Cuts and Jobs Act (TCJA), NOLs could be carried back two years, forward 20 years, and offset up to 100% of taxable income. The TCJA changed the landscape: Carrybacks are eliminated (except certain farm losses). Carryforwards are allowed indefinitely. The deduction is capped at 80% of taxable income for the year. If an NOL carryforward exceeds your taxable income of the target year, the unused balance may become an NOL carryover. Multiple NOLs must be applied in the order they were incurred. What’s the excess business loss limitation? The TCJA established an “excess business loss” limitation, which took effect in 2021. For partnerships and S corporations, this limitation is applied at the partner or shareholder level, after the outside basis, at-risk and passive activity loss limitations have been applied. Under the rule, noncorporate taxpayers’ business losses can offset only business-related income or gain, plus an inflation-adjusted threshold. For 2025, that threshold is $313,000 ($626,000 if married filing jointly). Remaining losses are treated as an NOL carryforward to the next tax year. In other words, you can’t fully deduct them because they become subject to the 80% income limitation on NOLs, reducing their tax value. Important: Under the Inflation Reduction Act, the excess business loss limitation applies to tax years through 2028. Under the TCJA, it had been scheduled to expire after December 31, 2026. Plan proactively Navigating NOLs and the related restrictions is complex, especially when coordinating with other deductions and credits. Thoughtful planning can maximize the benefit of past losses. Please consult with us about how to proceed in your situation. © 2025
When it comes to estate planning, married couples often assume that simply naming each other in their wills or designating each other as beneficiaries is sufficient. However, unintended consequences can result if you and your spouse fail to properly coordinate your estate plans. Examples include conflicting provisions, unexpected tax consequences or assets passing in ways that don’t align with your shared wishes. Coordinated estate planning can help ensure that both your and your spouse’s documents and strategies work together harmoniously, protecting your legacies and the financial well-being of your loved ones. Boost tax efficiency One of the primary benefits of coordinating estate plans is tax efficiency. By working together, you and your spouse can take full advantage of the marital deduction and applicable gift and estate tax exemptions. This can help minimize the overall tax burden on both estates. Coordination becomes especially important if you have a blended family, where children from previous relationships are involved, or in situations with complex assets like business interests or multiple properties. Clear and consistent planning that factors in tax consequences can help ensure that all beneficiaries are treated fairly and that your intentions are honored. Streamline administration Another benefit of coordinated planning is it helps streamline the administration of the estate. If one spouse becomes incapacitated or passes away, a well-integrated plan can reduce the administrative burden on the surviving spouse, avoid disputes and accelerate the transfer of assets. Coordinating plans also allow you and your spouse to make joint decisions about health care directives, powers of attorney and guardianship of minor children, ensuring that both of your wishes are respected and consistently documented. Follow your state’s law Keep in mind that state law generally governs estate matters. Therefore, state law determines if your property is community property, separate property or tenancy by the entirety. For instance, California is a community property state. That generally means that half of what you own is your spouse’s property and vice versa, though there are some exceptions. Be proactive Married spouses who coordinate their estate plans can avoid pitfalls and maximize the benefits of thoughtful planning. Taking these steps proactively can strengthen your and your spouse’s financial security and shared legacy. We can help ensure that all elements of your plans are aligned and up to date. © 2025
To get the most from any team, its leader must establish a productive rapport with each member. Of course, that’s easier said than done if you own a company with scores or hundreds of workers. Still, it’s critical for business owners to make “the leadership connection” with their employees. Simply put, the leadership connection is an authentic bond between you and your staff. When it exists, employees feel like they genuinely know you — if not literally, then at least in the sense of having a positive impression of your personality, values and vision. Here are four ways to build and strengthen the leadership connection with your workforce. 1. Listen and share Today’s employees want more than just equitable compensation and benefits. They want a voice. To that end, set up an old-fashioned suggestion box or perhaps a more contemporary email address or website portal for staff to share concerns and ask questions. You can directly reply to queries with broad implications. Meanwhile, other executives or managers can handle questions specific to a given department or position. Choose communication channels thoughtfully. For example, you might share answers through company-wide emails or make them a feature of an internal newsletter or blog. Video messages can also be effective. 2. Stage formal get-togethers Although leaders at every level need to be careful about calling too many meetings, there’s still value in getting everyone together in one place in real time. At least once a year, consider holding a “town hall” meeting where: The entire company gathers to hear you (and perhaps others) present on the state of the business, and Anyone can ask a question and have it answered (or receive a promise for an answer soon). Town hall meetings are a good venue for discussing the company’s financial performance and establishing expectations for the immediate future. You could even take it to the next level by organizing a company retreat. One of these events may not be feasible for businesses with bigger workforces. However, many small businesses organize off-site retreats so everyone can get better acquainted and explore strategic ideas. 3. Make appearances Meetings are useful, but they shouldn’t be the only time staff see you. Interact with them in other ways as well. Make regular visits to each unit, department or facility of your business. Give managers a chance to speak with you candidly. Sit in on meetings; ask and answer questions. By doing so, you may gather ideas for eliminating costly redundancies and inefficiencies. Maybe you’ll even find inspiration for your next big strategic move. Best of all, employees will likely get a morale boost from seeing you take an active interest in their corners of the company. 4. Have fun and celebrate All work and no play makes business owners look dull and distant. Remember, employees want to get to know you as a person, at least a little bit. Show positivity and a sense of humor. Share appropriate personal interests, such as sports or caring for pets, in measured amounts. Above all, don’t neglect to celebrate your business’s successes. Be enthusiastic about hitting sales numbers or achieving growth targets. Recognize the achievements of others — not just on the executive team but throughout the company. Give shout-outs to staff members on their birthdays and work anniversaries. It’s all about trust At the end of the day, the leadership connection is all about building trust. The greater your employees’ trust in you, the more loyal, engaged and productive they’ll likely be. We can help you measure your business’s productivity and evaluate workforce development costs. © 2025
The Tax Cuts and Jobs Act (TCJA) significantly limited the types of theft losses that are deductible on federal income taxes. But a recent “advice memo” (CCA 202511015) from the IRS’s Office of Chief Counsel suggests more victims of fraudulent scams may be able to claim a theft loss deduction than previously understood. Casualty loss deduction basics The federal tax code generally allows individuals to deduct the following types of losses, if they weren’t compensated for them by insurance or otherwise: Losses incurred in a business, Losses incurred in a transaction entered into for profit (but not connected to a business), or Losses not connected to a business or a transaction entered into for profit, which arise from a casualty or theft loss (known as personal casualty or theft losses). A variety of fraud schemes may fall under the third category. To deduct a theft loss, the taxpayer/victim generally must establish that: The loss resulted from conduct that’s deemed theft under applicable state law, and The taxpayer has no reasonable prospect of recovery of the loss. From 2018 through 2025, though, the TCJA allows the deduction of personal casualty or theft losses only to the extent of personal casualty gains (for example, an insurance payout for stolen property or a destroyed home) except for losses attributable to a federally declared disaster. As a result, taxpayers who are fraud victims generally qualify for the deduction only if the loss was incurred in a transaction entered into for profit. That would exclude the victims of scams where no profit motive exists. The loss of the deduction can compound the cost of scams for such victims. The IRS analysis The IRS Chief Counsel Advice memo considers several types of actual scams and whether the requisite profit motive was involved to entitle the victims to a deduction. In each scenario listed below, the scam was illegal theft with little or no prospect of recovery: Compromised account scam. The scammer contacted the victim, claiming to be a fraud specialist at the victim’s financial institution. The victim was induced to authorize distributions from IRA and non-IRA accounts that were allegedly compromised and transfer all the funds to new investment accounts. The scammer immediately transferred the money to an overseas account. The IRS Chief Counsel found that the distributions and transfers were made to safeguard and reinvest all the funds in new accounts in the same manner as before the distributions. The losses, therefore, were incurred in a transaction entered into for profit and were deductible. “Pig butchering” investment scam. This crime is so named because it’s intended to get every last dollar by “fattening up” the victim with fake returns, thereby encouraging larger investments. The victim here was induced to invest in cryptocurrencies through a website. After some successful investments, the victim withdrew funds from IRA and non-IRA accounts and transferred them to the website. After the balance grew significantly, the victim decided to liquidate the investment but couldn’t withdraw funds from the website. The Chief Counsel determined that the victim transferred the funds for investment purposes. So the transaction was entered into for profit and the losses were deductible. Phishing scam. The victim received an email from the scammer claiming that his accounts had been compromised. The email, which contained an official-looking letterhead and was signed by a “fraud protection analyst,” directed the victim to call the analyst at a provided number. When the victim called, the scammer directed the victim to click a link in the email, giving the scammer access to the victim’s computer. Then, the victim was instructed to log in to IRA and non-IRA accounts, which allowed the scammer to grab the username and password. The scammer used this information to distribute all the account funds to an overseas account. Because the victim didn’t authorize the distributions, the IRS weighed whether the stolen property (securities held in investment accounts) was connected to the victim’s business, invested in for profit or held as general personal property. The Chief Counsel found that the theft of property while invested established that the victim’s loss was incurred in a transaction entered into for profit and was deductible. Romance scam. The scammer developed a virtual romantic relationship with the victim. Shortly afterwards, the scammer persuaded the victim to send money to help with supposed medical bills. The victim authorized distributions from IRA and non-IRA accounts to a personal bank account and then transferred the money to the scammer’s overseas account. The scammer stopped responding to the victim’s messages. The Chief Counsel concluded this loss wasn’t deductible. The victim didn’t intend to invest or reinvest any of the distributed funds so there was no profit motive. In this case, the losses were nondeductible. Note: If the scammer had directed the victim to a fraudulent investment scheme, the results likely would’ve been different. The analysis, in that situation, would mirror that of the pig butchering scheme. Kidnapping scam. The victim was convinced that his grandson had been kidnapped. He authorized distributions from IRA and non-IRA accounts and directed the funds to an overseas account provided by the scammer. The victim’s motive wasn’t to invest the distributed funds but to transfer them to a kidnapper. Unfortunately, these losses were also nondeductible. What’s next? It’s uncertain whether the TCJA’s theft loss limit will be extended beyond 2025. In the meantime, though, some scam victims may qualify to amend their tax returns and claim the loss deduction. Contact us if you need assistance or have questions about your situation. © 2025