A reader asks: This year my business lost money to an employee embezzling funds. How do I deduct that? Can I add it to a 1099 for them?
My answer: Where you deduct the loss varies depending upon whether your business is a sole proprietorship, corporation, etc. But the embezzlement will be deducted as a Theft loss (and generally listed in the “Other Expenses” category on the tax return). IRS Publication 547 has more information.