You struggled with money for many months before deciding to turn to bankruptcy. Now, after it has finally been completed, you find yourself with another question: How will your taxes be affected?
The debts that you had forgiven are considered as taxable income. Regardless of that fact, the Internal Revenue Service usually, and specifically, excludes that taxable income from your general income under the government’s tax rules.
You do still have to report this income, even though it won’t be used against you in a way that increases your taxes. Failing to report the income could result in penalties, so if you have questions, talk to your tax attorney about how to handle your bankruptcy losses and gains.
Are there any special deductions you can take after your bankruptcy?
If you want to deduct your personal bankruptcy expenses, like your attorney’s fees, you’re out of luck. Personal bankruptcy clients can’t claim deductions for those services. However, if you went through a business bankruptcy, you’re in luck. Businesses are able to deduct their attorney fees as business expenses.
What do you do if you still owe federal taxes?
If you went through bankruptcy but had federal taxes due, you should know that you’ll likely still need to pay those back. Unless your judge specifically told you that your tax debts were cleared, you’ll need to contact the IRS to set up a repayment plan or to negotiate a settlement.
Can you get tax refunds during or following a bankruptcy?
Yes, you can. Any refund might be requested to be used to pay down your debts if you receive that refund during the bankruptcy process. However, if you receive a refund after your bankruptcy case has been finalized, then you shouldn’t have to worry about giving up those funds for any excused debts.
Don’t be scared to ask for help with your taxes after bankruptcy
You may have more questions about your bankruptcy and how it could affect your taxes. If so, don’t be afraid to reach out to your attorney to ask. Take your taxes seriously, because making mistakes could affect you negatively in the future.