When you file bankruptcy, you will be dealing with a lot of different financial aspects. In addition to credit card and consumer debt, you may also be dealing with additional taxes that you owe the Internal Revenue Service. Here are five common questions asked regarding taxes and bankruptcy.
Can I Have Past Taxes Forgiven When I File Bankruptcy?
The court determines each case, but many people can have back taxes forgiven. Back taxes are taxes that you owe for previous years, and not the taxes that you need to pay for the current year. It is important to have filed your taxes for the previous few years so that any back taxes that you owe can be considered as part of the bankruptcy. If you are continuing to incur debt or not pay your taxes for the current year, you may be denied bankruptcy, so it is important that you are paying your quarterly tax payments on time and in full this year.
How Do I File My Income Taxes During Bankruptcy?
When you are in bankruptcy, you will need to file your taxes twice. You will need to file your taxes as you normally would using one of the versions of the 1040 form to file your taxes for your personal income. Then your bankruptcy trustee will need to use form 1041 to file for your estate, which is your bankruptcy. It is important to talk to both your bankruptcy attorney and your tax accountant when you are filing your taxes during bankruptcy to make sure that everything is filed correctly.
Can I Get a Refund When I File Bankruptcy?
According the to IRS, you are still eligible to get your refund during bankruptcy. However, the IRS will use the refund to cover back taxes before they give it to you. If you have your back taxes completely forgiven, then you can receive your refund or the remainder of it.
Can I Stop Paying My Estimated Tax Payments During Bankruptcy?
If you stop making your current tax payments, then you can have your bankruptcy denied. During bankruptcy, you cannot incur additional debt, and not making your quarterly estimated tax payments is considered incurring additional debt. If you owe back taxes, you will need to include them as part of your paperwork when you file bankruptcy, but you need to stay current on what you owe for the year.
Will I Have to Pay Taxes on My Discharged Debt?
According to Intuit.com, you will not need to pay taxes on any debt that you have discharge during bankruptcy. This is different from when you settle debt and you are required to pay taxes on the forgiven debt. Your bankruptcy attorney should be able to explain any remaining obligations that you must pay depending on the type of bankruptcy that you file.Share