does a tax return count toward debt payment?

[NR08]

I've looked everywhere and can't seem to find this answer. I even asked my lawyer but don't understand his answer.

When they take my tax return next year, will it count toward our total debt owed and will be payments be lowered or the BK discharged early or is it just a bonus for the trustee? I expect it to be a lot and it could significantly impact the total amount of our repayment.

[Mary Irene]

It does count toward the debt owed. It does not lower your payments. It will reduce the amount of months that you will be making payments.

[CindyLou]

It will only reduce the amount of months you pay if you are in a 100% payback. otherwise, its just money lost and you will pay all of your "disposable" income until the end of the plan.

[2ndChanceTx]

In my case, I had a $1054 refund that was directly applied to backtaxes that were listed in the bk. The plan base was reduced by the $1054 and I was not a 100% payback.

[Flamingo]

If your tax "refund" (not return - that is what you file) is withheld by your trustee during your Plan and you are at a percentage lower than 100% payback, the refund does not reduce what you owe or your Plan payments. It is distributed to your creditors over and above the amount of your Plan. It is considered additional disposable income for you.

[NR08]

Oops, meant "refund." We're supposed to be in a 70% repayment so they would get my tax refund and it wouldn't count. Now, does that happen all 5 years of the 13? I just started a business that is not turning a profit (the reason why I'm in this mess!) and so I get a hefty refund.

[Flamingo]

Oops, meant "refund." We're supposed to be in a 70% repayment so they would get my tax refund and it wouldn't count. Now, does that happen all 5 years of the 13? I just started a business that is not turning a profit (the reason why I'm in this mess!) and so I get a hefty refund.

Yes, the Trustee can take your tax refund each year of your plan.

[BKParalegal]

It is usually stated on the Trustee's website, about tax refunds. It is typical of most Trustee's to allow the debtor to keep the first $2,000 and then they take the rest. If possible, adjust your deductions to avoid getting a large refund, or don't be as aggressive on your income tax deductions on the last 3 years returns during your Chapter 13, then when you get discharged, go back and amend the returns to collect any possible refund.

Good Luck

[maddog2112]

I had an 8k refund for 07, due to extra ot and deductions from a home business. The trustee did apply all of it to my existing creditors reducing my balance, but then upped my payback to 80% from 75%. I don`t think it pays to have any refund. One thing I asked last year before doing my taxes on this forum was, had anyone asked the IRS to apply refunds to the following year to let them build up until the 13 is finished. I never received an answer, so I guess noone had ever had that problem.

[nervousnellie]

Under reporting your business expenses KNOWINGLY to create a larger refund would be considered a fraudulent return,the same as under reporting income KNOWINGLY.

Not a great idea!

[epiphany]

It is usually stated on the Trustee's website, about tax refunds. It is typical of most Trustee's to allow the debtor to keep the first $2,000 and then they take the rest. If possible, adjust your deductions to avoid getting a large refund, or don't be as aggressive on your income tax deductions on the last 3 years returns during your Chapter 13, then when you get discharged, go back and amend the returns to collect any possible refund.

Good Luck

Hmmm, now this surprises me coming from you as that would be illegal, wouldn't it?

As one who was audited by the IRS this year for a total of two years (they found NOTHING by the way), I wouldn't suggest filing a fradulent return ever under any circumstances. That was one of the most stressful things I have ever gone through, stress doubled as it was right in the middle of my BK. And I had nothing to hide.

I don't think anyone should ever trade peace of mind for any amount, monetary or otherwise. You never know if something like that is going to come back to bite you in the butt and it's best that you never have to wonder.
ep

[justbroke]

Hmmm, now this surprises me coming from you as that would be illegal, wouldn't it?

As one who was audited by the IRS this year for a total of two years (they found NOTHING by the way), I wouldn't suggest filing a fradulent return ever under any circumstances. That was one of the most stressful things I have ever gone through, stress doubled as it was right in the middle of my BK. And I had nothing to hide.

I don't think anyone should ever trade peace of mind for any amount, monetary or otherwise. You never know if something like that is going to come back to bite you in the butt and it's best that you never have to wonder.
ep

I have filed returns before where I didn't claim all of the deductions for which I was entitled. that's not fraud.

For example, in 2005, Congress passed a law to allow one to claim a "sales tax" deduction for States where there was no personal income tax. When I did my taxes with a software package, the forms to do this weren't available. The software asked if I wanted to submit my taxes now, and claim the deduction later.

I did just that. I just finally submitted my 1040x to correct my 2005 tax return to the tune of over $500.00.

If it's illegal to not claim everything you're entitled to, then there are lots of people out there that are wrong.

Just a nitpick. (I do agree in principle, that you shouldn't defraud the IRS, but not claiming deductions that you are entitled to, is not fraud. )

[nervousnellie]

I was referring to Business deductions/income
Example: Not including all could result in a much larger Earned Income Tax Credit.And you better believe they(the IRS) monitors Business returns that are out of the norm. Your personal deductions have no impact on this credit.

[Flamingo]

Oops, meant "refund." We're supposed to be in a 70% repayment so they would get my tax refund and it wouldn't count. Now, does that happen all 5 years of the 13? I just started a business that is not turning a profit (the reason why I'm in this mess!) and so I get a hefty refund.

Have you already filed and are starting this business after filing? Is your attorney and trustee aware of this? If you have to provide tax returns each year to your trustee as many require, and you start adjusting taxes withheld so as not to get a large refund, you could raise some eyebrows. Discuss with your attorney your questions as to your large refunds so you get the correct advice for your situatoin.

[epiphany]

I was referring to Business deductions/income
Example: Not including all could result in a much larger Earned Income Tax Credit.And you better believe they(the IRS) monitors Business returns that are out of the norm. Your personal deductions have no impact on this credit.

I have to concur here. I was referring to business expenses as well--the only part of my returns that was audited was the business.

While it is acceptable to ammend because you overlooked something or made a mistake, to knowingly do so when avoidable is not acceptable. With the IRS, intent is everything. I just think it's best to have all your ducks in a row and not create a bigger mess for yourself down the road.

ep