Bankruptcy Reminders For the 2012 Tax Season

On Tuesday, the IRS announced that the recent tax law changes will push back tax season by eight days. Individual tax returns will first be accepted on January 30, while April 15 remains the deadline for filing. For many, tax season can be a bittersweet time of year. If you’re expecting a big return, it’s sort of like waking up on Christmas morning and tearing open the largest present under the tree. But unlike Christmas morning, there are the caveats. Filing your taxes can be an exhaustive and confusing process. Paying an accountant can cut into your return. Things can get especially confusing and time-consuming if you’ve recently filed for bankruptcy or you’re debts are forcing you to consider bankruptcy soon. While our team at Marks Law Firm aren’t tax experts, we are experts in every aspect of bankruptcy law, which coincides with a couple of questions we frequently hear from clients around tax season:

Can I Discharge My Income Tax?

This may surprise you, but the answer is a (very conditional) yes. The main criterion for discharging income tax is the amount of time since the income tax was due. If the income tax was due within the past three years, then you’re still on the hook for that amount even after filing bankruptcy. If the taxes have been due for more than three years, then they will be dismissed upon filing for bankruptcy. While that may seem simple, there are several other conditionals that you will need to explore before you make any final decisions. Awhile back I wrote a much more detailed blog post on income tax discharge, so check out that post for a much more detailed description of this topic.

How Will Filing for Bankruptcy AFTER January 1st affect my 2012 tax return?

If you’re taxes are paid in full — or you are owed money by the IRS — you don’t need to concern yourself with this section. If you owe money to the IRS for 2012, then filing for bankruptcy can help you in several ways. As I just mentioned in the previous question, you will not be able to wipe away 2012 income tax until 2016, so how can bankruptcy help you now? If you are filing a Chapter 7 bankruptcy, you may be able to clear away enough debts so that paying your income taxes for the past year is more feasible. If you elect to file a Chapter 13 bankruptcy, your income taxes will become part of your Chapter 13 payment plan. This gives you flexibility to pay off your income tax debt over a longer period of time without accruing interest or being hit with penalty fees. Additionally, Chapter 13 will provide you protection from the IRS and Iowa’s income tax agency while you make your payments.

While these two questions come up very frequently, there are many more that we hear on almost a daily basis this time of year. While these answers may be helpful, a full analysis of your financial situation may be necessary to properly answer all of your bankruptcy-related tax questions. If you’re considering bankruptcy this year, and taxes are a deciding factor, make sure you schedule a no-cost consultation with Marks Law Firm today. We’re experts in bankruptcy law, and frequently help clients who are dealing with piled-up tax debt. Don’t let your tax problems ruin your financial life, contact us today!

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