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  1. #11
    Join Date
    Oct 2006
    Posts
    16,262

    Default Re: Loss of Non-Qualified Wages to Bankruptcy

    Quote Quoting TJ6
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    Hello All - thanks for the comments and direction on my scenario. I get the 401K example...if I made bad investment decisions and my value declined from $20K to $5K, I'd pay tax on the $5K when withdrawing the money and wouldn't/couldn't file a loss for the $15K I lost due to my investing mistakes.

    But in my mind, my non-qualified scenario is different as it's my (former) company's business negligence that forced them to file for bankruptcy (and now place my deferred salary at risk) vs something of my doing. Thankfully I was able to get 1 payment out of them before they filed (and of course I paid uncle sam his share at the time)...but due to status of the stock market at the timing of their bankruptcy filing, all the monies in the account they've been holding are my deferred salary. Hence this is what I thought I'd be able to do assuming $100K in deferred salary / account value:

    - Without bankruptcy the $100K would be disbursed to me as taxable income. Assuming a 25% tax rate, I'd net $75K after taxes.

    But if w/bankruptcy I GET NONE of my $100K back, then I would think I can book the $75K loss of after-tax wages that I earn for services rendered but never realized a red cent of.

    TJ
    No, you cannot book a 75k loss because you never paid taxes on that 100k. Had you paid taxes on that 100k previously then you would have an argument for booking a 100k loss not a 75k loss.

    Remember, we are talking about taxes here, not anything else. Its not the job of the tax system to reimburse you for bad investment decisions with pretax money.

  2. #12
    Join Date
    Oct 2014
    Posts
    8,025

    Default Re: Loss of Non-Qualified Wages to Bankruptcy

    Quote Quoting TJ6
    View Post
    But if w/bankruptcy I GET NONE of my $100K back, then I would think I can book the $75K loss of after-tax wages that I earn for services rendered but never realized a red cent of.
    Sorry, but no deduction for that for the reason I explained before. None of the wages that went into that were taxed as it otherwise should have been when you earned it. Because of that, you get nothing in a tax deduction if the account value is wiped out. It doesn't matter whose fault it is that the account got wiped out. The tax law does not turn on that.

  3. #13
    Join Date
    Sep 2010
    Posts
    19,750

    Default Re: Loss of Non-Qualified Wages to Bankruptcy

    It's not even an investment with pretax money. He conducted work with a promise of a future payment. If the firm becomes insolvent in the interim, thems the breaks.

    Now if they had payed you shares (and you'd have been taxed) or bonds or some equities in the company (and had been taxed) and those equities suddenly became worthless (which I've seen happen with tech companies), then you have a loss, yet still likely are limited with what you can do with it. For most people, they'll be taking their loses 3K at a time for the next twenty years (or the tax code changes again).

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