I was due $80,000.00 this year from an "Employment Contract" from my previous employer. In 2018, the company let me borrow $30,000.00. Originally it was supposed to be deducted fromt he above Payout. However, due to his kind generosity and the fact that I am struggling, he forgave the loan and paid the full $80,000.00, which I rolled over into an IRA. MY QUESTION- Do I have to report the $30,000.00 on my tax return. I do not think he meant for me to have to pay taxes on loan, but I do not know how to tell him to handle?
I get a 1099-NEC each year for Consulting Work done for him. (2024 is $2500.00). I was not doing consulting work at the time of the loan so I do not think I should have to pay self employment tax on it. Is there a way for the company to write off this loan without giving me a 1099, report on something other than 1099-NEC so only state and federal tax have to be paid, any other way to either eliminate or reduce the taxes I have to pay. If I receive income on a 1099-NEC, taxes will over $10,000.00. Plus I will have to pay taxes on the money when I withdraw from my IRA to pay taxes. Trying desperately to save this money for Long Term Care, since I have severe health issues and live alone. ANY ADVICE OR HELP WOULD BE GREATLY APPRECIATED!
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Can you get a gift letter from your previous employer for the $30k?
the employer runs into a deductibility issue. also IRC sec 102(c) which says gifts to employees is compensation.
@kaypiercy1-gmail I also don't understand the $80K you put into an IRA especially since you are saying you're struggling. something does not make sense. i
"However, due to his kind generosity and the fact that I am struggling, he forgave the loan and paid the full $80,000.00"
The $80,000 (which you say you received under an "employment contract") sure sounds like compensation, which as such would be subject to FICA, FUTA, and income tax withholding, and for which you should be furnished a W-2 at year's end.
And as @Mike9241 pointed out, any "gift" included in that $80,000 would by law be considered part of the compensation.
Finally, a "rollover" can only occur from funds held in an employer-sponsored retirement plan, such as a 401K.
If you were an independent contractor, everything you receive as compensation for your services is taxable income, even if it more than your original agreement. (This is not a gift, and that suggestion could cause serious problems for both you and the business.)
If you were a W-2 employee, and you have deferred compensation, you should get a W-2 for the full amount of your compensation, subject to all normal taxes on wages. This sounds like it should be treated as a bonus, rather than as a forgiven loan or gift.
I don't see how you can rollover funds to your IRA unless they came from a qualified plan like a 401k. And there is no way the employer could legally deposit more than $69,000 into a 401k for you in 2024 (or $76,500 if you are over 50), and the employer can't deposit that much into just one employee's plan, unless he is that generous with all employees. (Company benefit plans can't show favoritism.)
There seems to be a lot going on here that is dodgy, illegal, or maybe just not explained properly. I suggest you see a qualified CPA or tax accountant before the end of the year, so you have a chance to correct any errors before they become uncorrectable.
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