Will Filing Bankruptcy Have an Effect on My Taxes?
Taxes and debt are two of the things in life that burden people the most. Taxes must be paid and too much debt can lead to bankruptcy. What many people don’t know is that bankruptcy and taxes can go hand-in-hand. Filing an income tax return after bankruptcy isn’t difficult in itself, but there are things to watch out for. Turning to experienced Henrico bankruptcy attorneys will help you with the tax filing process after you have been absolved of your debt.
The attorneys at Canfield Wells LLP will make you aware of the things that must be taken care of when it comes to filing your taxes. IRS Publication 908 states that the Bankruptcy Code requires the debtor to file an extension or go ahead with the individual tax return. If either of those actions doesn’t occur, a bankruptcy case that is in progress can be dismissed or converted. Plus, the bankruptcy trustee files form 1041 and that in itself makes it necessary to file a tax return.
Does Bankruptcy Increase the Tax Bill
As for whether you will owe more tax or not, it’s true that the cancellation of debt is considered taxable income. However, income tax rules state that debts that are discharged due to bankruptcy aren’t taxable. This is good news because it means you’ll most likely file your income tax return as usual. Just be sure to check with our experienced Henrico bankruptcy attorneys to determine if anything special needs to be done in your unique situation.
If a debt is canceled that wasn’t discharged in bankruptcy, you will need to report the debt. The creditor will send you a form 1099-C so you can report the exact dollar amount on your income tax return.
Knowledgeable Bankruptcy Attorneys
If you need to file bankruptcy, have already started the process on your own and need help, or you have post-bankruptcy matters that need to be handled, Canfield Wells LLP can help you. Our knowledgeable Henrico bankruptcy attorneys will provide you with the proper guidance so life before, during, and after bankruptcy can be as pain-free as possible.