Are Pirate Ransoms Tax-Deductible?

(Photo: lamont_cranston)

Reader Martin Dimitrov writes in:

Are ransoms paid to pirates tax-deductible? The question actually makes sense to me. If we can pay medical insurance and dependent care pre-tax, we should be able to deduct the ransoms (typically a substantial sum) paid to save our relatives/dependents.

According to the IRS, the answer is yes, since kidnapping ransom qualifies as theft, along with blackmail, embezzlement, and extortion. You must, however, show proof of your loss. So make sure to get a receipt, or file a police report. A recent court order in India also allows for tax deduction on ransom. This has some lawmakers worrying about a potential unintended consequence: a spike in fake kidnappings.