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[[I relocated because of a job change last year. My new employer paid a portion
of my relocation which was reported as taxable income. I have since left the
employer but stayed in the area. As a result of leaving before 1 year, I had to
repay 20% of the relocation to the company. How do I handle the repayment of
fees, some of which I have had to claim as earned income and pay taxes on, on
my taxes?]]

It may or may not be a deductible issue...and it can get pretty complicated. You'll really want to read more about this issue in IRS Publication 525. Here is an excerpt...

If you had to repay an amount that you had included in your income in an earlier year because at that time you thought you had an unrestricted right to it, you can deduct the amount repaid from your income in the year in which you repay it.

Type of deduction. The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. For instance, if you repay an amount that you previously reported as a capital gain, deduct the repayment as a capital loss.

If you repaid social security or equivalent railroad retirement benefits, get Publication 915. If you repaid other railroad retirement benefits, get Publication 575.

Repayment-$3,000 or less. If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. If you reported it as wages, unemployment compensation, or other ordinary income, enter it on line 22 of Schedule A (Form 1040). If you reported it as a capital gain, deduct it on Schedule D (Form 1040).

Repayment-over $3,000. If the amount you repaid was more than $3,000, you can either take a deduction for the amount repaid (Method 1) or you can take a credit against your tax (Method 2). Figure your tax under both methods and use the method that results in less tax.

Method 1. Figure your tax for 1998 claiming a deduction for the repaid amount.
Method 2. Follow these steps.
1) Figure your tax for 1998 without deducting the repaid amount.
2) Refigure your tax from the earlier year without including in income the amount you repaid in 1998.
3) Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the credit.
4) Subtract the answer in (3) from the tax for 1998 figured without the deduction (step 1).

If the amount from Method 1 is less tax, deduct the amount repaid on the same form or schedule on which you previously reported it. For example, if you reported it as self-employment income, deduct it as a business deduction on Schedule C or Schedule C-EZ (Form 1040). If you reported it as wages, deduct it as an individual deduction on line 27 of Schedule A (Form 1040).

If using Method 2 results in less tax, claim the credit on line 63 of Form 1040, and write "I.R.C. 1341" next to line 63.

Example. For 1997 you filed a return and reported your income on the cash method. In 1998 you repaid $5,000 included in your 1997 gross income under a claim of right. Your filing status in 1998 and 1997 is single. Your income and tax for both years are as follows:
1997 1997
With Income Without Income
Taxable Income $15,000 $10,000
Tax Liability $ 2,254 $ 1,504

1998 1998
Without Deduction With Deduction
Taxable Income $49,950 $44,950
Tax Liability $10,698 $ 9,298
Your tax under method (1) is $9,298. Your tax under method (2)is $9,948, figured as follows:
Tax previously determined for 1997 $2,254
Less: Tax as refigured - 1,504
Decrease in 1997 tax $750
Regular tax liability for 1998 $10,698
Less: Decrease in 1997 tax - 750
Refigured tax for 1998 $9,948

Because you pay less tax under method (1), you should take adeduction for the repayment in 1998.
Repayment does not apply. This discussion does not apply to:

1) Deductions for bad debts,
2) Deductions from sales to customers, such as returns and allowances, and similar items, or
3) Deductions for legal and other expenses of contesting the repayment.

Year payment deducted. If you use the cash method, you can take the deduction for the tax year in which you actually make the repayment. If you use any other accounting method, you can deduct the repayment only for the tax year in which it is a proper deduction under your accounting method. For example, if you use an accrual method, you are entitled to the deduction in the tax year in which the obligation for the repayment accrues.

Hope this helps...
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