How tax debt is handled in an Elk Grove bankruptcy depends on several factors. Despite your preconceived notions, it is possible to eliminate tax debt with bankruptcy. When tax debt cannot be deleted using bankruptcy another option is to have the tax debt repayment spread over a period of up to five years. Whether you plan on filing a Chapter 7 or Chapter 13 Elk Grove bankruptcy, here is what to expect in settling your delinquent taxes.
Chapter 13 Bankruptcy
When filing for Chapter 13 bankruptcy, tax debt falls into either priority or non-priority taxes. Priority taxes include sales taxes, employment taxes, excise taxes, customs duties, tax penalties, erroneous tax refunds or credits, and trust fund taxes including income taxes, FICA, and Medicare withheld from employees. Alternatively, non-priority taxes include taxes on income or gross receipts and income taxes due three years or more before filing bankruptcy. Additionally, you must have filed a tax return at least two years prior, and the tax must be assessed against you 240 day or more before your bankruptcy filing. For a full list of criteria contact a local debt relief attorney to assist you in determining your tax obligations.
Elimination or discharge of priority tax debt is not a possibility in Chapter 13 bankruptcy. However, when you file Chapter 13 bankruptcy, you will be able to spread this debt across the entire span of your Chapter 13 repayment plan. Priority taxes must be paid back in full over this period to receive a discharge of non-priority debts. Depending on your income you may only be required to pay back a portion of your non-priority taxes, with the remainder being dischargeable at the conclusion of your Chapter 13 bankruptcy case.
Chapter 7 Bankruptcy
As with most debts, tax debt is handled differently in a Chapter 7 bankruptcy versus a Chapter 13 bankruptcy. Tax debt is dischargeable in Chapter 7 bankruptcy as long as it falls into the previously mentioned criteria for non-priority debt. For taxes to be discharged in Chapter 7 bankruptcy, they must be income-based and must derive from a tax return at least three years before bankruptcy.
Contact a California Bankruptcy Attorney
Bankruptcy attorneys in Elk Grove are standing by to assist you with your debt issues, no matter if it derives from unpaid taxes or consumer debt. Bankruptcy is a legal status for individuals who are unable to repay their debts. Bankruptcy options are afforded to everyone who can prove their insolvency. Contact a bankruptcy lawyer if you are ready to take control of your financial destiny and legally eliminate debt.
A common question often asked by debtors is whether or not tax debts can be discharged in bankruptcy. Tax debts may qualify for discharge if (a) the due date for the return was three years or more before you filed bankruptcy, (b) the taxes were assessed at least 240 days prior, (c) the tax return from which taxes are two was filed at least 2 years prior to the filing of the bankruptcy, and (d) you have not committed tax fraud or tax evasion.
These requirements often mean that, for most people, their tax debts cannot be eliminated in bankruptcy. Often, tax debts in bankruptcy means still owing them at the end of a chapter 7, or including them in a payment plan for chapter 13 bankruptcy.
Non-dischargeable Tax Debts
Tax liens, new property taxes, certain employment taxes, non-punitive tax penalties, and erroneous tax refunds or credits will not be discharged in a Chapter 7 bankruptcy case. However, in a chapter 13 case tax liens can be reduced to the total value of a debtor’s assets at the time of filing bankruptcy. Accomplishing a tax lien reduction in a chapter 13 case would require a motion to value and service upon the tax entity that holds the lien.
If you are unable to pay your taxes when they are due, following these steps can help you avoid penalties:
- File your return on time, even if you are unable to pay. This will limit your liability for penalties and will prevent any appearance of tax evasion.
- Request an extension of time to pay. In some cases, the IRS will grant up to 60 extra days to pay the full amount due.
- Request an installment agreement.
- Consider filing an offer in compromise which essentially is an offer to settle with the IRS for a lesser amount owed. The IRS will not likely accept an Offer in Compromise if they think the installment plan is possible or reasonable.
If you would like more information about what debts can be discharged in bankruptcy, contact a Fairfield debt relief attorney to discuss your options.
Some of the most common questions we hear at our Sacramento bankruptcy office are centered on how bankruptcy affects tax debts. It’s not surprising that individuals want to know how filing a Chapter 7 or Chapter 13 bankruptcy will affect those tax debts imposed by the IRS. The good news is that in certain situations, you can discharge tax debt using Chapter 7 bankruptcy, and in other situations you can gain additional time to pay back taxes using Chapter 13 bankruptcy.
Discharge Tax Debt
As aforementioned, certain types of taxes can be discharged if they meet certain criteria. Chapter 7 bankruptcy is typically a much more efficient way of discharging or wiping out tax debts, but not everyone will qualify for Chapter 7 bankruptcy protection. If you are able to pass the “means test” and become approved to proceed with a Chapter 7 bankruptcy filing, your tax debt will only be discharged if:
- The tax debt is three tax years old or more.
- You have filed your tax returns at least two years ago for the tax year in question.
- The IRS assessed the tax debt more than 240 days ago.
- The tax debt you owe is income tax and not payroll tax or other type of tax.
Automatic Stay and Tax Debt
When you file for either type of bankruptcy in California, you receive what is called an “automatic stay”, which prohibits creditors from continuing any collection activities. The automatic stay can also stop foreclosures, repossessions, utility disconnections, and in some cases, tax liens. It’s important to note that an automatic stay will not prevent tax liens that are associated with property taxes due after your bankruptcy filing, or liens associated with taxes that cannot be discharged in bankruptcy. Additionally, an automatic stay is only a temporary relief from IRS tax collection activities, and the IRS must be properly notified of your bankruptcy filing by listing them as a creditor on your bankruptcy forms. The key to avoiding tax liens is to file BEFORE the lien is recorded, as even Chapter 7 bankruptcy will not eliminate existing liens. What Chapter 7 bankruptcy can do is wipe out your personal obligations to pay the tax debt and keep the Internal Revenue Service from garnishing your wages. Tax liens can be avoided or reduced in chapter 13 bankruptcy when the value of your property is worth less than the amount of the tax liens.
Tax debt is no simple matter; the IRS has many tools that it employs to get the money owed to it. If you live in the Greater Sacramento, California area and are burdened with tax debt that you can’t seem to pay down, a bankruptcy attorney in Sacramento will usually offer a free consultation and have the experience in debt relief to afford you different options on how to free yourself of tax debt, or if nothing else, give you extra time to pay back the tax debt owed over an extended time period.
If you are lucky enough to get a tax refund this year, be thankful. Not everyone gets money back. A lot of people owe the IRS. How do you plan to use your tax refund this year? A vacation? A new purchase for the home? Don't waste the money on something frivolous. Here are some smart tax refund uses to boost your financial profile.
Smart Tax Refund Uses
First, look at your debts. Are you still carrying that holiday shopping debt on your credit card? Are you only making minimum payments? If so, consider using your tax refund to pay down debts. Making a large payment towards a debt is going to boost your credit also. Lower your debt balance and improve your credit score. Sounds like a win-win.
Another smart use for your tax refund is to build or start an emergency fund. Although this doesn't sound like a fun way to use the money it is very necessary. You never know when you need a set of tires for your car. Or what if you were to get sick and miss too much work? An emergency fund is there for the unthinkable. Not having one or having one with very little in it is a financial disaster waiting to happen. Invest in the stability of your financial future by putting your refund into a savings account.
Finally, put your tax refund into your retirement account. If you were to put an average tax refund into a retirement account every year of your working career you could easily save $50,000 or more. That money goes a long way after you are no longer earning a paycheck each month. Consider it an investment in the future you. Make sure you have a nest egg to relax during those golden years.
Smart money management isn't always easy, or possible. Sometimes hard times fall on good people through no fault of their own. If you are struggling with debt, contact a Sacramento bankruptcy lawyer to discuss your debt relief options.
It is tax season once again. With it comes the dreaded April 15th deadline for filing taxes. If you are anticipating getting a tax refund are you really getting all you can? Follow these maximum refund tax tips to get the most of out of it.
Maximum Refund Tax Tips
First, consider skipping the standard deduction. Instead, consider itemizing your deductions. The more deductions you have the lower your tax liability, and bigger the refund. Take the time to gather your receipts for expenses.
Look for deductions such as out of pocket medical expenses. Student loan interest and supplies are also tax deductible. Job related expenses like mileage and any business use of home may also count. Similarly, losses due to business requirements could be deducted. Contributions to charity also are tax deductible. Some losses due to casualty or nature may be tax deductible. The bottom line is look for every single deduction that can be itemized and claimed on your return for a bigger refund.
Another way to boost your refund is by contributing to your Traditional IRA before the April 18th deadline. Traditional IRA contributions will reduce your taxable income. By contributing the maximum before filing your taxes, you will reduce your tax liability. A reduction in tax liability means you owe less, or receive more in the refund.
Lastly, don't forget the tax credits. The dependent care credit allows you to deduct a percentage of the amount you paid for care. Total expenses are capped at $3,000 for one dependent and $6,000 for two or more. The earned income tax credit allows for the reduction of tax liability for self-employed individuals who have moderate to low income.
Tax time can be stressful, but being organized can help. Seek the help of a professional accountant for help with your taxes. If you are dealing with tax debt, contact a bankruptcy lawyer in Antelope, CA for help.