Data Breach and Identity Theft Losses

The average cost of data breaches globally in 2023 was $4.5 million, and increasing.* Identity theft generally goes hand in hand with breaches. What should you do if you’re hit by either? Take immediate action to close the breach and protect against future attacks. Then, consider how you might deduct your losses.

Under Sec. 165(a) of the tax code, any taxpayer may deduct losses that (1) are incurred in a trade or business (which would include breach and identity theft losses); (2) are incurred in a transaction entered into for profit, other than through a trade or business; or (3) arise from fire, storm, shipwreck, or other casualty, or from theft. Alternatively, businesses may opt to deduct losses under Sec. 162(a) as "ordinary and necessary" business expense. Individuals may deduct their losses only under Sec. 165(a).

*Cost of Data Breach 2023 Report, IBM