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Filing taxes can get complex if you’re dealing with anything beyond a W-2 form. For Carina, a 45-year-old neuroscientist, filing taxes was especially painful this year, as she had to account for a $130,000 loss that resulted from an ongoing romance scam.
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Here’s a look at how Carina has dealt with her unique tax situation.
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How To Account for a Loss Due to a Romance Scam on Your Taxes
Carina was hoping to file taxes on her own, but found that her situation was more complex than could be accounted for with traditional tax software.
“I was planning on filing taxes normally on my own using TurboTax and the 1040 EZ,” she said.
However, after doing some research on her own, Carina found that she would be penalized for withdrawing money from her retirement savings account to pay the scammer.
“I would have been penalized for taking out my retirement early and would have had to pay that fee — about 20%,” she said. “No one would have advised me otherwise until I pursued my own tax lawyer.”
While working with a lawyer, Carina discovered that she could categorize the money lost in the scam as a “casualty and theft loss.”
“I didn’t know anything about casualty and theft loss options, nor that pig butchering cases could utilize this,” she said. “There is no literature or awareness on what your options are as a victim of a scam. You have to research it all yourself.”
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Help From the IRS
In Carina’s case, the IRS is offering concessions that can help her come Tax Day.
“They are allowing me to deduct my losses from my salary,” she said. “Again, I would not have known I could do this until I consulted a tax lawyer.”
Advice for Other Scam Victims
Because losing money to a romance scam or other online “pig butchering” scams is a unique situation, Carina recommends that other victims seek out the help of a tax lawyer.
“They will need to talk to a tax lawyer to understand their losses and if they can claim it as a deduction to their salary,” she said. “Every case is different, but for pig butchering cases, it is clear that you can claim the loss because you were under the assumption that you were investing into a platform that would provide profits, and since the money you put in there was stolen, you can claim that loss.”
Carina also said that other scam victims should be prepared to be audited.
“I saved everything and wrote a report — including the police reports and FBI report sent via IC3 — to prove your losses and that you were scammed, via saved chats and the like,” she said.
She notes that you also need to be prepared to pay the fees that come along with hiring a tax lawyer.
“Be sure to save the money for that tax lawyer to file on your behalf,” Carina said. “The cost for me was $950 — $350 for filing and $600 for theft loss filing.”
It’s also important to note that you will need to file taxes the old-fashioned way.
“The IRS will not let you e-file your new tax return, so you’ll have to send it by mail,” said Dr. Zulfikar Ramzan, chief scientist and EVP at Aura, an online safety platform. “Consult the list of IRS taxpayer return addresses in each state, and make sure you’re sending your return to the proper location depending on your situation.”
He continued, “Paper tax returns take longer to process than e-filed returns, so don’t get too worried if it takes longer than usual. If your state’s IRS office has a backlog, it may take weeks for you to receive a response as well.”
You should also do proper vetting for any accountant or tax lawyer you work with.
“Make sure the person or company has the proper credentials,” Ramzan said, “and that they sign your tax return when submitting it.”
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This article originally appeared on GOBankingRates.com: I Lost $130,000 to a Romance Scam — and Now My Tax Bill Is Due
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