IS EMPLOYEE THEFT DEDUCTIBLE?

Q. We found out that one of our office workers stole about $500 from petty cash. Can we deduct the loss?

A: Yes. As with personal theft loss, the amount of the loss is generally treated as a deductible casualty and theft loss, reduced by the amount of any insurance reimbursements. But you could run into a problem if the IRS ever challenges your claim. Keep copies of police reports and other supporting documentation.