Change work exemption?

[Michigan42]

If I'm considering BK is it a common practice to change my exemption from 0 to 1? What if I do this & I owe taxes next year? How do you figure it out?

[rrockinggramma]

I would NOT change your exemptions. You want the lowest income to figure out your repayment on.

[optimistic1]

I would take rrockinggrramma's advice on keeping your exemptions at 0.

If you end up owing taxes, then you owe taxes, and you need to pay it.

Now, after you are confirmed, and you are making payments into your plan.

You, then will utilize the IRS withholding calculator.

This will accurately take into account, how much you make, and tell you what you should change your exemptions to.

Located here.

http://www.irs.gov/individuals/page/0,,id=14806,00.html

[fltoo]

BK or not, IMO, you should never claim 0. A tax refund is simply Uncle Sam's way of having your money tax free for a year.

Use the IRS withholding calculator and change your exemptions so that you get back NO refund. The BK numbers are based on gross salary, so it does not matter.

Btw, the look back period for preferential payments to insiders is ONE year, but if something is fishy, the trustee can look back on anything in any time frame. But, the one year is safe. A fraudulent transfer has a look back of TWO years (where someone transfers an asset to hide it).

Best advice I can give you is to read through this entire forum. The "search" feature will be your best friend. The more you know, the more relaxed you will be in your endeavor.

[Michigan42]

Thanks for the info, I'm certainly learning a lot. I'm just a bit worried because the last 2-3 years I've paid back $$$ to relatives for bills & upgrades to the house (new elec panel, driveway cement repair, water leak in basement, etc.) I dont want to involve them in that capacity. I'll certainly have to call them & explain why we cant pay them back this year, or as soon as they expected. I do have receipts for those repairs.

[Kansas1960]

Should we not be raising exemptions for Chapter 7?

In my case since I am looking at a Chapter 7 would it not be best to withold less by raising exemptions so I won't be getting a big refund which the trustee will take home to feed his family? I raised my exemptions so less would be withheld from my paycheck. This gives me more money to live on right now and won't leave me exposed in 2009 when the trustee wants my refund. Is my thinking wrong?

[optimistic1]

I respectfully disagree, only in the terms of the BK, if not in a Bk, you are right, why lend money to the government at 0% interest.

For Ch 13 BK it would be advisable to claim 0. And after your plan is confirmed, then adjust your witholding allowances, thus giving you even more cushion, with no return.

In terms of determining disposable income for your plan payment, you would NOT use your gross income, thats only for the means test, which the means test really isnt for 13's.

[optimistic1]

In my case since I am looking at a Chapter 7 would it not be best to withold less by raising exemptions so I won't be getting a big refund which the trustee will take home to feed his family? I raised my exemptions so less would be withheld from my paycheck. This gives me more money to live on right now and won't leave me exposed in 2009 when the trustee wants my refund. Is my thinking wrong?

Your thinking makes absolute sense, why let them take your tax return. However, when you factor in the taxes section of deductions in the means test, it may increase your DMI, which may make you look like a candidate for a Ch. 13.

Also, you are posting this in the Ch.13 section of the forum, its a little different than a Ch.7 case.

[Kansas1960]

Yikes...sorry

I didn't realize I was in the chapter 13 forum. I am sorry. By habit I always just check "today's posts" without looking which discussion it origniated from. Point well taken and will look for that in the future. Thanks for keeping me straight.