Currently, identity theft and credit fraud are two prevalent issues affecting the United States, with many citizens falling victim to such scams annually. It is one thing to lose your identification documents or credit cards since it is very costly and psychologically traumatizing. This is why more persons are seeking the services of credit monitoring as well as identity protection services to guard themselves.
But are the costs that involve the monitoring services able to be removed through writing off or being deducted for tax purposes? Now, let us consider credit monitoring in detail to determine whether it is a tax deductibility or not.
Credit Monitoring Services are services that allow a user to monitor their credit information
Credit monitoring are service that you can subscribe to to have your credit reports and any signs of credit identity theft be reported to you.
Some of the key features of most credit monitoring services include: Some of the key features of most credit monitoring services include:
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An option that involves tracking your credit report from Equifax, Experian, and Transunion every day and notifying you of any observed shifts. This would include factors such as new account opening, change of address, queries, and the like.
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Notifications about attempts that can be in identity theft, for example, your information is available in the black markets.
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Services to assist with the resolution of identity theft and to assist in restoring the user’s identity should they fall victim to identity theft. This is also known as identity restoration or recovery services.
- Other offers such as Credit score, credit report, and credit score analysis are preferred monthly.
The following are some of the leading credit monitoring services: LifeLock, IdentityForce, Experian, Credit Sesame, Identity Guard, and many others. These sites can cost as little as $5. 95 per month, and up to and over $30 depending on what functions are involved.
What is the Pertinence of Credit Monitoring Costs
Well, can you even write these subscriptions off as credit monitoring credit? Unfortunately for most of the population, the answer is probably no – the price for credit monitoring and identity theft protection services is not tax deductible.
Currently, no IRS tax code or section would enable these filers to claim the amounts paid for credit monitoring or identity theft protection as the standard deduction. These types of services do not fall under the category of allowable expenses that are incurred in a business line to reduce the taxable income.
Expenses must meet strict IRS criteria to be claimed as tax deductions: Expenses must meet strict IRS criteria to be claimed as tax deductions:
- They must have been received or expensed in the year in which they are being subtracted.
- They must be considered an ordinary & necessary expense for either: They must be considered an ordinary & necessary expense for either:
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Having taxable income or revenues or gains, whether within or outside the country, that are subject to a specific tax rate.
- Overseeing/insuring accounts that deal with income-generating assets.
They are all the expenses that could be categorized under either of these two categories that are allowed as deductions. However, there is no logical explanation for how one could classify credit monitoring services as a universally reasonable and necessary expense that satisfies these conditions for most taxpayers.
The Possible Self-Employment Exemption
However, there is one situation where credit monitoring or ID theft protection fees can become completely or partially deductible: for self-employed individuals and business owners.
Sole proprietors receive an extra amount of flexibility for expense deductions due to the QBI rules for business incomes. A write-off may represent costs that were incurred for business and have a business purpose.
Therefore, identities and credit/financial information must be needed when operating a one-person business entity. Your identity being stolen means you can be locked out in terms of functioning and earning an income.
Thus, self-employed filers could justify to the IRS that identity protection services serve as overheads, needed to safeguard current and future self-employment income streams. However, this would also remain at the prerogative of IRS auditors to determine who to examine and why.
To claim the deduction, individuals have to file Form T2200, which is a certificate of withholding tax issued to non-residents and students working in Canada.
However, if trying to justify credit monitoring fees under the premise of being a self-employed business owner where would one report the cost on his or her tax return?
Such types of expenditure would probably fit under miscellaneous expenses. On Schedule C for sole proprietorships or Schedule E for rental property income, there is an “Other Expenses” category through which expenses for protecting business income can be deducted. The purpose of the expense must be described in a clear and precise manner.
Keep Receipts for Documentation
If the credit monitoring expenses will be claimed as a business expense, it is necessary to keep receipts and invoices of how much was paid for the monitoring services in the tax year. This is specifically important when one is audited since he or she can quickly explain the reason for the deduction, based on the clear records.
Explore Other Options
If you don’t work for yourself unfortunately there will be no means through which you could be allowed to deduct subscriptions for credit monitoring. If you still have a desire to go for it, then it is better to consult a tax professional.
If one wants to have an additional financial safety net, he or she should take other measures such as insurance. Monetary protection can be sought and offered from such plans as identity theft insurance or credit insurance. But as with all the other special insurance options offered, the actual premium payments for these are also not tax deductible, although the benefits that one can avail if there is a claim, particularly about personal legal disputes, may be exempt from taxation.
In conclusion, there is no way that one can explain the monthly fees for credit monitoring and identity theft protection as deductible expenses in the eyes of the IRS especially in the current taxation year. However, if you run a genuine business that depends on your credit/identity, it is possible to justify the costs and you should be able to include them in your business expenses – provided you have proper records. In case you need to establish whether or not you are eligible for a write-off, it is always best to consult with a tax specialist for your circumstances.
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