How do I reverse the deduction I claimed earlier years in the current tax return?

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Young Fellow
Posts: 104
Joined: Sun Dec 18, 2016 8:48 pm

How do I reverse the deduction I claimed earlier years in the current tax return?

Post by Young Fellow » Thu Mar 08, 2018 1:57 pm

Hi,

I am in this situation where you guys can help me to file this year taxes. I claimed 1099 misc deduction in previous years which is legal attorney fees and this year those attorney fees are returned to me. Is there anyway to reverse the deduction I claimed earlier years without disclosing 1099 misc (returned attorney fees) this year. Because if I disclose 1099 misc, then my tax bill is double of the tax deduction or savings I gained in previous years. It will be cheaper for me just to pay back the tax I saved in previous years because of the deduction. Is there anyway I can do this reversal of deduction in intuit. Thanks in advance.

montanagirl
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Location: Montana

Re: How do I reverse the deduction I claimed earlier years in the current tax return?

Post by montanagirl » Thu Mar 08, 2018 2:22 pm

The 1099 has already been "disclosed" to the IRS.

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: How do I reverse the deduction I claimed earlier years in the current tax return?

Post by rkhusky » Thu Mar 08, 2018 2:27 pm

You received the money this year and you incurred the costs in past years. I doubt you can move the income backwards in time. A loophole like that would open a can of worms that people would try to exploit.

Topic Author
Young Fellow
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Re: How do I reverse the deduction I claimed earlier years in the current tax return?

Post by Young Fellow » Thu Mar 08, 2018 2:32 pm

montanagirl wrote:
Thu Mar 08, 2018 2:22 pm
The 1099 has already been "disclosed" to the IRS.
Sorry I did not understand, first I just received the check from attorney and no 1099 misc was mailed to me. You mean the attorney would disclose the fees he returned to me as 1099 misc payment he made in his tax return?

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HueyLD
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Re: How do I reverse the deduction I claimed earlier years in the current tax return?

Post by HueyLD » Thu Mar 08, 2018 2:34 pm

Young Fellow wrote:
Thu Mar 08, 2018 1:57 pm
Hi,

I am in this situation where you guys can help me to file this year taxes. I claimed 1099 misc deduction in previous years which is legal attorney fees and this year those attorney fees are returned to me. Is there anyway to reverse the deduction I claimed earlier years without disclosing 1099 misc (returned attorney fees) this year. Because if I disclose 1099 misc, then my tax bill is double of the tax deduction or savings I gained in previous years. It will be cheaper for me just to pay back the tax I saved in previous years because of the deduction. Is there anyway I can do this reversal of deduction in intuit. Thanks in advance.
Your situation is known as “recoveries” and it is relatively common even though the recoveries may be from other sources.

Report the amount on line 21 of form 1040.

Google recoveries and taxes. IRS has detailed instructions on this subject.

pshonore
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Re: How do I reverse the deduction I claimed earlier years in the current tax return?

Post by pshonore » Thu Mar 08, 2018 2:35 pm

I think you claimed a Form 1040 Sched A Misc deduction.

SouthernCPA
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Re: How do I reverse the deduction I claimed earlier years in the current tax return?

Post by SouthernCPA » Thu Mar 08, 2018 2:46 pm

HueyLD wrote:
Thu Mar 08, 2018 2:34 pm
Young Fellow wrote:
Thu Mar 08, 2018 1:57 pm
Hi,

I am in this situation where you guys can help me to file this year taxes. I claimed 1099 misc deduction in previous years which is legal attorney fees and this year those attorney fees are returned to me. Is there anyway to reverse the deduction I claimed earlier years without disclosing 1099 misc (returned attorney fees) this year. Because if I disclose 1099 misc, then my tax bill is double of the tax deduction or savings I gained in previous years. It will be cheaper for me just to pay back the tax I saved in previous years because of the deduction. Is there anyway I can do this reversal of deduction in intuit. Thanks in advance.
Your situation is known as “recoveries” and it is relatively common even though the recoveries may be from other sources.

Report the amount on line 21 of form 1040.

Google recoveries and taxes. IRS has detailed instructions on this subject.
Agree, if you received a deduction for the attorney fees that you later recovered, it will likely be taxable income in the year you received the fee refund.

Topic Author
Young Fellow
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Joined: Sun Dec 18, 2016 8:48 pm

Re: How do I reverse the deduction I claimed earlier years in the current tax return?

Post by Young Fellow » Thu Mar 08, 2018 2:51 pm

<r><QUOTE author="rkhusky" post_id="3820526" time="1520537228" user_id="29254"><s>
rkhusky wrote:
Thu Mar 08, 2018 2:27 pm
</s>
You received the money this year and you incurred the costs in past years. I doubt you can move the income backwards in time. A loophole like that would open a can of worms that people would try to exploit.
<e>
</e></QUOTE>

Just to explain, I had posted on this earlier but not on how to execute the deduction reversal. The general consensus at that posting in this group was, I don't need to do any 1040x as deductions were legitamate in previous years. SInce attorney fees are returned now, I need to show it as income equivalent to the amount of taxes I saved. Because of accepting stock options I moved into higher bracket. If I show returned attorneys fees I would be paying twice the taxes I saved when I used deductions. Here is the question, is there anyway to show returned attorney fees as nontaxable income and at the same time pay IRS exact amount of taxes I saved in prior years because of the deductions?

Rather actually I am trying to pay IRS back past deductions claimed and not trying to decrease current year taxes by loophole.

Topic Author
Young Fellow
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Joined: Sun Dec 18, 2016 8:48 pm

Re: How do I reverse the deduction I claimed earlier years in the current tax return?

Post by Young Fellow » Thu Mar 08, 2018 2:53 pm

pshonore wrote:
Thu Mar 08, 2018 2:35 pm
I think you claimed a Form 1040 Sched A Misc deduction.
Correct

RudyS
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Re: How do I reverse the deduction I claimed earlier years in the current tax return?

Post by RudyS » Thu Mar 08, 2018 4:02 pm

The "recoveries" section in IRS Pub 17 seems pretty clear - you report on line 21 the recovery. I know this will create more tax liability than the benefit you got by itemizing earlier, due to higher current income tax bracket, but unfair or not, seems you are stuck.

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: How do I reverse the deduction I claimed earlier years in the current tax return?

Post by rkhusky » Thu Mar 08, 2018 4:06 pm

Young Fellow wrote:
Thu Mar 08, 2018 2:51 pm
Rather actually I am trying to pay IRS back past deductions claimed and not trying to decrease current year taxes by loophole.
But you had the use of that money from the past deductions for a period of time for which you paid no interest.

As others have noted, the IRS has dealt with situations like this before:
https://taxmap.irs.gov/taxmap/pub17/p17-068.htm

Unfortunately, it appears that the extra income is coming at an inopportune time for you. That happens to many people.

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