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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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taxability of employee sales draw that has to be refunded to

Resolved Question:

taxability of employee sales draw that has to be refunded to company when draw is more than commissions earned upon termination of employeement right now the company is taxing draw as earned income even though it has not been earnted
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

LEV :

Hi and welcome to Just Answer!

LEV :

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.

Customer:

is it a negative other income adjustment or does it have to go on form 2106 and subject to a 2% limitation

LEV :

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.

Customer:

Thanks what wonderful experience, I will give you the best rating possible

LEV :

Please review and be sure you bookmark this page - so you will come back if you need any help.
I might not be immediately available - but surely will reply.

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