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I did some work for a company in 2012. They paid me about $4,000 in wages, but owe me about $56,000 in unpaid wages. I recently (March 2014) got my W-2 from the company.

In the same 2012 tax year, I had about $90,000 in earnings distinct from the company with the unpaid wages. That is, it was a different company. The earnings had standard with holdings.

I was not able to file my taxes in 2012 because of the missing tax forms.

The fellow who owes me the $56,000 went out of business last month, so there's little hope of getting paid now.

Can I write off the $56,000 based on demand letters? Or do I need to finish suing him to write-off the loss?

Should I file the 2012 taxes now? Or wait until the lawsuit finishes?

If the lawsuit finishes in 2014, does it apply to the 2012 taxes?

I live in the US, so the context is federal and state taxes.

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  • The missing $56000 didn't by any chance appear on the late W-2 as earnings, did it?
    – DJohnM
    Jun 19, 2014 at 16:35

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Can I write off the $56,000 based on demand letters? Or do I need to finish suing him to write-off the loss?

No and no. You didn't pay taxes on the money (since you didn't file tax returns...), so what are you writing off? If you didn't get the income - you didn't get the income. Nothing to write off. Individuals in the US are usually cash-based, so you don't write off income "accrued but never received" since you don't pay taxes on accrued income, only income you've actually received.

Should I file the 2012 taxes now? Or wait until the lawsuit finishes?

You should have filed by April 2013, more than a year ago. You might have asked for an extension till October 2013, more than half a year ago. Now - you're very very late, and should file your tax return ASAP. If you have some tax due - you're going to get hit with high penalties for underpaying and late filing.

If the lawsuit finishes in 2014, does it apply to the 2012 taxes?

Probably not, but talk to your lawyer. In any case - it is irrelevant to the question whether to file the tax return or not. If because of the lawsuit results something changes - you file an amended return.

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    @jww what loss? you never had that to begin with. Income not received is not a loss, it is absence of income.
    – littleadv
    Jun 19, 2014 at 7:24
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    @jww you earned it, you didn't get it - that is absence of income. You're cash-based, what you "earned" (aka accrued) is irrelevant.
    – littleadv
    Jun 19, 2014 at 7:26
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    "You should have filed by April 2013, more than a year ago." - yes, I would have liked to (without the loss, I still have a large refund). But I did not have the W2. That made it really hard to file on time. As a matter of fact, I had to engage a lawyer to get the damn thing from him.
    – jww
    Jun 19, 2014 at 7:51
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    @jww W2 is not a pre-requisite to filing your taxes.
    – littleadv
    Jun 19, 2014 at 7:51
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    @jww I answered this question here: money.stackexchange.com/a/28827/2998 Make sure you follow the links, especially the IRS one.
    – littleadv
    Jun 19, 2014 at 8:02

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