If you have filed for bankruptcy or been awarded a discharge recently, you may need to look differently at how you file your taxes. Generally speaking, there are no major tax problems that you will face after you file for bankruptcy, but there is some important information to keep in mind when tax season rolls around.
How You File Your Taxes
When you file for bankruptcy, you are assigned a bankruptcy trustee who handles your affairs and your debt is moved into an estate. Whether you have filed for a Chapter 7 or a Chapter 13 bankruptcy, you will file a U.S. Individual Tax Income form (the IRS Form 1040) just as you have in prior years.
If you file for Chapter 7 bankruptcy, your bankruptcy estate becomes a separate taxable entity, and your trustee will file a U.S. Income Tax Return for Estates and Trust (IRS form 1041) on behalf of your bankruptcy estate. In Chapter 13, your estate is not a separate entity, so you only need to file the Form 1040.
Ensure Your Discharged Debt Does Not Get Taxed
It’s true that debts that are discharged in bankruptcy do not count as taxable income you have earned. Often, when you have debt such as credit card balances discharged, the creditor who discharged it will send you a form 1099-C, which is simply a notification of a cancellation of debt. One way to ensure you are not taxed for the discharged debt on the 1099-C or any other debt discharged in your bankruptcy is to file a Form 982 with the IRS.
This form will allow you to show what debt was discharged in bankruptcy as well as reduce your tax attributes. It’s important to note that debt cancelled outside of bankruptcy may be regarded as taxable income, so be sure to file your form in a timely manner to avoid making your debt look like it was cancelled outside of your bankruptcy.
File Your Tax Returns on Time
When going through a bankruptcy, it is very important that you file your taxes on time or file a request for an extension if needed. The Bankruptcy Code states that failure to file taxes or an extension in a timely manner can result in conversion of your case to another chapter (such as converting a Chapter 13 to a Chapter 7) or dismissal of your case. Anyone who is granted an extension but does not file within the 90-day extended period will have their case dismissed. Moreover, filing your taxes on time ensures you will not receive monetary penalties from the IRS.
Contact an Ohio Bankruptcy Attorney for Help
Between filing for bankruptcy and filing taxes after bankruptcy, you’re faced with a lot of different forms and instructions, which may leave you feeling confused and overwhelmed. It might be time to consult an experienced Ohio bankruptcy attorney, who can guide you through the bankruptcy process and provide helpful information on your taxes as well. The Ohio bankruptcy attorneys at Luftman, Heck & Associates can give you all the information you need. Contact us today at (216) 586-6600 or by email at firstname.lastname@example.org and get your questions answered.