[Alberta's Child]

That’s exactly right. Shrink/theft is not an expense. It’s a lost opportunity for sale.

If I buy 100 widgets for $10 apiece and sell them for $20 apiece, my cost is $1,000 and my revenue is $2,000 … so I am taxed on the $1,000 profit.

If 10 of the widgets are stolen, then my cost is still $1,000 but my revenue is only $1,800 … which means I am paying taxes on the $800 profit.

So shrink/theft is only “tax deductible” to the extent that the cost of the merchandise is deductible. The IRS doesn’t distinguish between a widget that is stolen, a widget that is damaged, and a widget that simply doesn’t get sold for any reason.

[ridesthemiles]

IF the thief takes 5 items-—he has ZERO COST OF GOODS IN HIS INVENTORY-—

IF he sells those 5 items for $50 each-—1/3 of retail-—he has made the full $250.

AND—BETCHA HE NEVER FILES AN INCOME TAX RETURN