Discussion:Payback of Commissions
From TaxAlmanac
Discussion Forum Index --> Advanced Tax Questions --> Payback of Commissions
Discussion Forum Index --> Tax Questions --> Payback of Commissions
| 4 February 2008 | |
| I have a couple clients who were required to pay back commissions paid to them by the company they worked for. What is the proper handling of this on their returns? | |
RoyDaleOne (talk|edits) said: | 4 February 2008 |
| Were the commissions included in a W-2?
Were the commissions report as income on a Schedule C? | |
Death&Taxes (talk|edits) said: | 4 February 2008 |
| See Sec. 1341 You don't say if they were commissions paid as wages or on Sch C, but if the former, it would be a Sch A Misc Deduction. | |
| 4 February 2008 | |
| Commissions were included on a W-2 and they are cash basis taxpayers | |
| 4 February 2008 | |
| I was thinking Schedule A but if they don't itemize, they are out of luck. | |
| 4 February 2008 | |
| There is another option. Get the company to change the W-2's. Then file an amended return if within the statute. | |
RoyDaleOne (talk|edits) said: | 4 February 2008 |
| If you had to repay an amount that you included in your income in an
earlier year, 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. | |
Death&Taxes (talk|edits) said: | 4 February 2008 |
| I was assuming this was an earlier year, but if it is the same year, it would seem the company should reflect it thru the W-2, or it may be netted against the income.
If for an earlier year, and if less than $3,000, it is an miscellaneous itemized deduction subject to the 2% limit, and if you cannot itemize you are SOL. If more than $3,000 you have a choice: Either 1. Claim as Miscellaneous itemized deduction subject to the 2% limit or compute a credit against this year's tax by recomputing the year the income was reflected as if the commission had not been reported. The difference is a credit claimed on Line 70 but be sure to write Section 1341 next to the amount. I would suspect you will file this return by snail mail. | |
| 4 February 2008 | |
| The claim of right credit may or may not apply here. We need to know if the taxpayer had an apparent unrestricted right to the income in the year of receipt. In other words, if the circumstances leading to the repayment arose after the year of receipt, then the claim of right credit doesn't really apply. | |
RoyDaleOne (talk|edits) said: | 4 February 2008 |
| A taxpayer who is required to repay all or a portion of a single sum distribution from a qualified retirement plan is entitled to a loss deduction subject to the 2 percent AGI floor if the repayment is $3,000 or less, and to recover under Section 1341(a) provides rules for the computation of tax where a taxpayer is entitled to a deduction in excess of $3,000 as a result of restoring an amount included in gross income for a prior taxable year because it appeared that the taxpayer had an unrestricted right to such amount. The amount of the tax imposed on the taxpayer under section 1341 is the lesser of the tax for the taxable year computed with the deduction or an amount equal to the tax for the taxable year computed without the deduction but minus the decrease in tax for the prior tax year or years after excluding the income. Under section 67(b)(9), a deduction under section 1341 is not a miscellaneous itemized deduction subject to the 2-percent adjusted gross income floor of section 67(a). | |
