How does your bankruptcy affect the filing of your tax returns?Ownership 2020-12-05 0 COMMENTS
If you’re in over your head with debt and you’re considering filing for bankruptcy one of the questions that you might have could regard your taxes in the future. As professional bankruptcy attorneys, we often answer questions from clients on how taxes will be affected after a bankruptcy. If you’re filing for bankruptcy under Chapter 13 or Chapter 7 will still need to complete an individual tax return or file a request for an extension.
If you fail to file a tax return under Chapter 13, you could risk the chance that your case could be converted into Chapter 7 bankruptcy or completely dismissed. Bankruptcy can be a complicated process for your finances and it often involves changes in filing for your tax return. Making a mistake in your tax return could be costly especially if you’re in Chapter 13 bankruptcy. Understanding the nature of your tax return and working with a professional accountant or bankruptcy attorney is crucial here.
Filing a Tax Return During Bankruptcy
It may be appropriate for you to consider filing tax returns under a form 1041 return for the bankruptcy estate and individual form 1040 return. The bankruptcy of an estate consists of the assets that you owned before the date of the bankruptcy petition. It’s treated as a taxable entity for people filing under Chapter 11 and Chapter 7.
You will file a standard 1040 tax return under Chapter 7 bankruptcy and the bankruptcy trustee will be responsible for filing the 1041 form for your bankruptcy estate. If you are estate generated a gross income of at least $10,400, you may receive a tax refund from the bankruptcy and there will be a requirement for the 1041 form to be filed.
Under Chapter 13 bankruptcy you will likely not have to change your tax filing and file a 1041 form. People that are undergoing chapter 13 bankruptcy will have to complete an individual income tax return stating their finances before the bankruptcy. Report all income that you received during the year and deduct all expenses. Some of the taxes that you paid may be dischargeable under a Chapter 13 bankruptcy federal tax that may be discharged based on your case but it’s important to speak to a bankruptcy attorney to evaluate how much of the debt you can discharge on your taxes during a Chapter 13 individual tax filing.
If you’re having difficulty paying your taxes after bankruptcy it’s important to seek financial advice immediately.
This post was written by Trey Wright, one of the best bankruptcy lawyers in Tallahassee! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, which specializes in areas related to bankruptcy law, estate planning, and business litigation. Click here to learn more!
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