Taking a Tax Deduction from an Unreimbursed Loss

When disaster strikes, small business owners often experience property damage that leads to an unreimbursed loss. While in and of itself that is bad news, there is a silver lining. You may be able to recoup at least part of the unreimbursed property loss when you file your taxes.

A property loss, according to the IRS, can result from the damage, destruction or loss of property from any unexpected event (versus normal wear and tear or progressive deterioration). That might include disasters such as floods, hurricanes, fires and earthquakes. It may also include theft.

IRS rules require small businesses to reduce the loss by salvage value and insurance reimbursement. But the rest of the loss, which is considered unreimbursed, may be included in your itemized deductions come tax-filing time. So if a storm destroyed your store roof, a fire damaged your equipment or a burglar stole your delivery truck and insurance didn’t fully reimburse you, you may be able to deduct some of the loss on your federal income tax return.

Of course, there are rules. Generally, losses must be substantial (exceeding 10% of your gross income), and the year the deductions apply can also vary. It is also critical to document your deduction with receipts, police reports, insurance claims and any other records involved.

Of course, the best way to avoid unreimbursed losses is to have solid insurance coverage. Give us a call today to see how we can support you in finding the best policy!