statutory employee

[MGC94]

My client presented my office with a W2 for $797,342.00 in Box 1. In box 12 Coded V $531,842.  His actual salary was $265,470.  Taxes in Box 2 $174,456. He is an expert medical witness who works from his home which is a large farm.  This is 5 days a week for the entire year.  The W2 took all taxes out but upon compiling the return it appears that he owes about $55,000.  What could I do lower this liability?  He did extensive work on the farm probably $80,000 as he prepared it for a sale as soon as possible.

Doesn't it seem he should have a home office?  Could he be a Statutory employee where all expenses could be utilized on an 8829?

Thank you, 

Carol Conway 

[Accountant-Man]

First, read the definition of statutory employee. He is not one.

Second, do you know what code V is and how it pertains to him?

Third, if he is an employee he cannot deduct for a home office. Read about unreimbursed employee expenses 

[Just-Lisa-Now-]

So he got half a million in stock options, sell some of them and pay the taxes.

[qbteachmt]

I'd sure like to restate or clarify some of this:

A W-2 doesn't take "all taxes out." It's a guesstimate based on the payroll form W4, which the taxpayer controls, as well as having the ability to pay Estimates when something unusual happens in the tax year, across their entire financial events for the tax year. Think of it as Prepayment; not Taxes. Seeing a taxable bonus or other condition at year end on his final paystub (where they put YTD) means he could have paid in an estimated amount by Jan 15, if needed. It seems unlikely this one event is the issue, though. More likely, this person's entire financial year is a bit complicated.

"Could he be a Statutory employee where all expenses could be utilized on an 8829?"

It's unlikely he has $55k of costs in the operation of being an expert medical witness. A lot of employees worked from home in 2020, unexpectedly. Congress has not yet made a change to the lost tax benefit in TCJA for costs incurred because of this condition.

The farm is its own issue. His labor as "extensive work" isn't of value by itself, since he is not his own employee on the farm. Working on your farm has an impact to the farm of increasing its bounty or value. If that is in preparation for a Sale, than costs for improvements should be tracked as part of basis. The costs for repairs would be on the farm schedule in his tax return. Have you done this part, yet? Or is this a hobby farm?

[Accountant-Man]

https://www.investopedia.com/terms/s/statutory-employee.asp#:~:text=A%20statutory%20employee%20is%20....

"Statutory" refers to the Internal Revenue Service (IRS) classification of workers who are subject to tax withholding by statute under its common law rules.

BTW, this client is NOT A STATUTORY EMPLOYEE.

[qbteachmt]

This year, I love investopedia.

[MGC94]

They did sell some stock. Proceeds $703,304.45 cost basis $171,767.40 Gain $531,537.05 w/h federal taxes of 43,934.59,  30,485.92,  and 42,584.67. (plus additional expenses us Medicare, state taxes ..)  

Fidelity said with stock options its reported differently with showing the withholding from the cost basis and said refer to the other page showing 

$703,304.45 proceeds and 703898.91 adjusted cost basis show a was of 289.79 and a loss of -594.46.

How can I decreases the tax liability? any other suggestions? 

The V from w2 is non statutory stock options. 

[MGC94]

where would I read about unreimbursed employee expenses? You mean since the standard deductions is double how no w2 deductions are used any longer unless one is a preforming artist ..? 

Code V is non statutory stock options. 

Any recommendations to lower his tax liability? 

[sjrcpa]

Are you reporting (594) on Sch D and not 531,537?

Other than that, client made money and has to  pay tax. There is not a lot of 2020 tax planning that can be done in April 2021.

[Skylane]

Look at the w2. There is no X under stat emp because he is not one. Three are no deductions for his expenses. Nada.

code v is for options that have been grossed up into his earnings as ordinary income. Hopefully the employer took sufficient withholdings in the transaction (but they rarely do).

there should be a 1099b associated with the stock options that will be have to be reported on sch D but you’ll have to make a basis adjustment. Most of these result in a very small capital gain or loss, if any because the income is being reported on the W2.

[Skylane]

He made a lot of money... he’s gonna pay a lot of tax

[MGC94]

Proceeds $703,304.45 cost basis $171,767.40 Gain $531,537.05 w/h federal taxes of 43,934.59,  30,485.92,  and 42,584.67. (plus additional expenses us Medicare, state taxes ..)  

Fidelity said with stock options its reported differently with showing the withholding from the cost basis and said refer to the other page showing 

$703,304.45 proceeds and 703898.91 adjusted cost basis show a wash of 289.79 and a loss of -594.46.

How can I decreases the tax liability? any other suggestions? 

[MGC94]

If your client owed tens of thousands what would you recommend to lower tax liability? 

[Just-Lisa-Now-]

They got 500k, and didnt have enough withheld, theyre going to owe some taxes.

[sjrcpa]

They should have money to pay the tax. What did they do with the $700K sale proceeds?

[MGC94]

43,934.59,  30,485.92,  and 42,584.67 in federal taxes. 23,565.00, 16,352.00, 22,841.00 in state taxes. 4,693.01, 3,256.45, 4,548.82 in us MEDICARE taxes. Plus the exercise cost and commissions. They used the money to buy a house. 

[MGC94]

43,934.59,  30,485.92,  and 42,584.67 in federal taxes. 23,565.00, 16,352.00, 22,841.00 in state taxes. 4,693.01, 3,256.45, 4,548.82 in us MEDICARE taxes. Plus the exercise cost and commissions. They used the money to buy a house. 

Plus the w2 withheld $174,455.96 and state $82,429.42 

[MGC94]

43,934.59,  30,485.92,  and 42,584.67 in federal taxes. 23,565.00, 16,352.00, 22,841.00 in state taxes. 4,693.01, 3,256.45, 4,548.82 in us MEDICARE taxes. Plus the exercise cost and commissions. This was withheld on the 1099-B schedule D.

Plus the w2 withheld $174,455.96 and state $82,429.42. 

so it doesn’t matter that taxes were withheld on sch D? Because it’s a wash? And the income is on w2?

[sjrcpa]

You didn't tell us what gain or loss you put on Sch D.

Bottom line - not enough tax was withheld. Now they owe.

He should not have spent all the money on the house.