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Do you know what you need to be aware of when it comes to tax planning and bankruptcy?
By James MaGee, Washington Bankruptcy Attorney
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The date of the first result found in a search of Google for “2015 tax year planning” is January 22nd of this year. That is pretty early, considering that the end of the year is less than two months away as I write this. There is still time to make sure that you prepare before the opportunity to take actions that might help you this year is gone.
What do I need to be aware of when it comes to tax planning and bankruptcy?
- Most important: file all of your tax returns on time if you possibly can.
- Second: avoid under withholding or under payment of your quarterly tax obligations.
- Third: if you are in a Chapter 13 plan, and you owe more than $1,500 in taxes for a year after the filing of the case, you pay your tax debt off quickly if you possibly can. If you cannot, please come in to see me for a consultation. Read on to learn more about the steps that we may decide to take later in this article.
In this article, we will primarily cover tax-planning advice that is applicable to most people, regardless of income or assets.
Higher Contribution Limits in 2015 are Accompanied by Limits on IRA and FSA Rollovers
Investopedia summarized “Five Tax Law Changes in 2015 You Need To Know” that apply to savings plans, including IRA, 401(k), and Flexible Savings Accounts for healthcare. Most of the news is good; limits have been raised on contribution to retirement savings plans. However, employees are now limited to a single IRA roll over in any twelve-month period. And If you have a balance in your FSA at the end of 2014 and you carry over $500 of it into 2015, you will be ineligible to participate in an HSA in 2015. This restriction does not apply to FSAs for specific uses, such as dependent care or dental expenses.
The IRS Lays out Changes in 2015
The article, “In 2015, Various Tax Benefits Increase Due to Inflation Adjustments”, lists changes in bullet point form, including tax rates, deductions, and exemptions. These inflation-based increases mean that you will keep more of your money, or be able to claim higher level of deductions than in previous years.
What do These Changes Mean? Ideas for Action this Year
While most of these changes are generally good news, they do not eliminate the requirement to file federal income taxes.
- If you are in the midst of a bankruptcy filing, or if you are in a chapter7, chapter 13, or chapter 11 plan, then according to IRS Publication 908, Bankruptcy Tax Guide, the Bankruptcy Code requires a debtor to file an individual tax return, or request an extension. If this does not happen, the bankruptcy case can be converted or dismissed.
- In addition, the bankruptcy trustee is required to file an estate tax return, form 1041, for the bankruptcy estate. However, this is usually not a concern to the vast majority of my clients, as it usually involves “big” cases
- In the case of a Chapter 13 bankruptcy, the debtor pays disposable income into a monthly “plan” to pay creditors. In this case, you as the debtor are obligated to file your taxes on time, and, if you are directed to do so, to provide your returns to the trustee along with any refunds for payments to creditors during the bankruptcy repayment period.
- There are a number of other helpful articles and resources on my website. This article, “How to Prepare and File your Federal Income Taxes for Tax Year 2014” contains a number of recommendations and resources that are as applicable today as they were when originally published on my site. If your concerns are more technical in nature—for example, on the tax consequences of property sales during foreclosure—I wrote a series of articles that are available on my site here.
Tax planning in bankruptcy can be complicated for some, but not most, of my clients. Remember the most important point I mentioned at the beginning of this article: failure to file your taxes on time can lead to new problems that you will have to deal with.
If you are in a Chapter 13 repayment plan with my firm, and you owe the IRS money for a year after the year in which you filed Chapter 13, you must file your return on time, and then come talk to me. We need to let the Chapter 13 Trustee know that you are facing an obligation, and that you going to see a professional to get into a tax repayment plan. For some people, we might even be able to lower the Chapter 13 plan payment a little while you are in a repayment plan for the taxes that you incurred.
If you find any of this confusing, please make an appointment to come in and discuss your situation. We are here to help you through your bankruptcy—before, during, and after the filing and completion of your case.
We’re With You. All the Way Back.
I have compiled a record of service to my clients that is based upon my determination to be of help to them long after their case is over. Most of the articles on my site and the newsletters I’ve authored contain financial planning advice, including those linked above. The newsletter archive is posted on my site in case you would like to review previous editions at a later time. I am both proud and humbled by the comments my clients say in person and the reviews they’ve freely left about my staff and I on the web. I am committed to helping my clients resume their lives on a solid footing—all the way back after bankruptcy.
The newsletters and articles I write are free, and will remain so. You can rely on a regular series of updates throughout the year. I am motivated to write new articles that directly address questions asked by clients, to help them clarify questions they have, and relieve some of the worries that they feel. Day by day, I listen to my clients’ concerns and questions, and author articles with what I learn from these conversations.
Introducing Our Annual Financial Review Program
One of the services that we recently introduced is an annual financial plan review for clients who have completed their bankruptcy case. The program is an opportunity for you to schedule an in-person appointment to go over your individual financial circumstances, post-bankruptcy. We want to help you avoid pitfalls, and to make your life after bankruptcy the best it can be.
Make your appointment by calling us at (253) 383-1001, or by contacting us through our website, and keep the positive energy and momentum going in your life after bankruptcy.
Life After Bankruptcy Is Always Better.
Call us at (253) 383-1001 during our expanded spring hours:
Monday 8 AM—7 PM
Tuesday 8 AM—7 PM
Wednesday 8 AM—5:30 PM
Thursday 8 AM—7 PM
Friday 8 AM—5 PM
Saturday 9 AM—3 PM
You can reach us by email at staff1@washingtonbankruptcy.com with any questions you might have or to arrange your free, no obligation 30 minute consultation with the attorney. We care about your future, and we are here to help.
If All This Seems Confusing or Too Complicated,
Please Call Us for Help
Tax problems or long neglected debts can be complex and overwhelming. I may be able to help you understand your situation; I can certainly help you by discussing certain trade-offs and options concerning your situation with your debts, the IRS, and bankruptcy. Contact my office for a free, no obligation consultation right away!
Our site contains many useful articles and resources to help you consider how best to address financial issues that may be troubling you:
Our site contains a powerful search capability that you can access in the right hand column of the pages listed above that will help you access more than 220 articles Mr. MaGee has authored over the years. We thank you for your interest in our services.
Very truly yours,
James H. MaGee, Washington Bankruptcy Attorney
1108 North 6th Street
Tacoma, WA 98403
253-383-1001
staff1@washingtonbankruptcy.com.
You or someone you know may want to turn over a new leaf, and get started towards a brighter financial future now. Call us at (253) 383-1001, or contact us through our web site at washingtonbankruptcy.com/contact-us in order to schedule a free, no obligation, personal consultation with me. During our meeting, I will listen to your situation, examine your options with you, and explain how and why bankruptcy may be the right choice for you. Don’t wait; stop procrastinating! Act now to regain your peace of mind right away.
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