Re: Income Tax help


"Shyster1040" <Shyster1040@xxxxxxxxxxxxxxxxx> wrote

Re: Income Tax help
by "Joanne" <Joanne@xxxxxxxxxxxxxx> Dec 21, 2006 at 03:56 PM


<ankur.k2001@xxxxxxxxx> wrote in message
news:1166710695.163820.173190@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Hi All,
Until May this year, I was working for a company under a bond
agreement of 75,000 to work for minimum 15months. I decided to leave
the company after serving only for 10 months and thus was required to
pay 75K for breaching the bond agreement.
Since, I had to pay this money from the savings I had made,
shouldn't I get tax rebate on the money which never came to me. Also,
the employer who took 75K would have payed tax on it anyway , so now
two parties have paid income tax on the same money. Isn't this wrong?

It will be great if you can suggest me on this.

Regards,
Ankur Kulshrestha.


Don't take this as advice, only an observation:

The money you earned is income to be reported as such. The money you
paid

as a penalty is not deductible, just as a parking ticket would not be
deductible.

--
Sincerely,
Joanne

If it's right for you, then it's right, . . . . . for you!!!

http://www.jobird.com

Not necessarily so. An employee who is required to return previously paid
compensation to the employer who paid such compensation may either take a
deduction for the amount paid in the year of payment under Section 162 as
an ordinary and necessary business expense, see, e.g., Oswald v.
Commissioner, 49 T.C. 645 (1968), or, provided any other requirements are
met, may claim a credit against their current tax liability equal to the
amount of tax liability that the repaid amount originally generated in the
year of original receipt. See Section 1341.

So, for this year, the $75,000 you paid would first go to reduce the
amount of income you otherwise received from the employer as compensation.



The facts as stipulated don't point to this being a return of income of
income. Maybe the OP knows better, or can bring up a contract that supports
it as a return of income. If so, then taking it as a deduction as you
described is the way to go.


Otherwise, lacking any positive proof that it's a return of income, it's
what, a penalty for voiding the contract.

Apparently the same dollar amount would be due if he had quit after one
hour, or with one hour left in the contract terms.






To the extent that the $75,000 exceeds the compensation you received for
this year, you would be entitled to take a deduction for this year under
Section 162 for the amount of the excess. Alternatively, you may claim a
credit under Section 1341 for the amount of any prior years' tax liability
to which such excess amount relates, and take the credit against your
income tax liability for this year.









--
Paul Thomas, CPA
paulthomascpapc@xxxxxxxxxxxxx


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