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The draw is taxes as wages - and the company correctly treated it as earned income because the draw is a compensation for services.If repaid in the same tax year - the repaid amount is not included into taxable wages on W2 form.If repaid in the following tax year - that amount deducted separately on the tax return.Let me know if you need help in deducting repayments.
is it a negative other income adjustment or does it have to go on form 2106 and subject to a 2% limitation
f you pay back in 2011 the money which previously was included into your taxable income - you may be able to deduct the amount repaid from your income for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it.
Because the amount you repaid is more than $3,000, you may be able to take a credit against your tax. You may either claim a deduction or a credit. In most situations - claiming a credit is more beneficial.
You may not amend your 2010 tax return because repayment took place in later years.
You need to claim a repayment for the year in which it was repaid - in your situation - 2011.How to claim repayments? - See page 36 in this publication - http://www.irs.gov/pub/irs-pdf/p525.pdf.
For amount above $3000 - you actually need to prepare your 2010 tax returns that might be time consuming unless you used any tax preparation software - and determine the amount of credit you may use on your 2011 tax return.
Let me know if you need any help.
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