My wife has earned extra 1099 income while on Chapter 13

[allaneza]

Hello all:

I am writing to inquire if anyone can provide some specific direction on the following:

1. My wife and I were confirmed 13 months ago (Florida) and paying along every month, and doing well. Not a 100% Plan.

2. My wife was presented with an opportunity to work as a consultant on a 1099. This made us feel more secure in case any changes occured in my income.
So we earned extra 1099 income at the end of 2010.

3. My wife earned 15,500 at the end of 2010. We are about to file 2010 taxes. We will owe taxes this year, so the extra income earned will be absorbed by paying the taxes and some business-related expenses.

4. For 2011 taxes, she has already earned 11,000 gross, and we are about to pay quarterly taxes on this. There are also expenses associated with this income as well.

5. We called our attorney and informed him about the extra 2010 income that is reflected in the taxes we are about to file, and the income earned thus far in 2011, and asked how and when we should report any extra earned 1099 income, since we don't know when my wife will have a paid project from month to month.

6. The attorney told us to submit our income taxes to the trustee by the 15th of April each year, as requested, and to wait for the trustee to tell us if/what to do. He told us to keep the money in the bank to determine how and when to send it to the trustee, when requested. He told us not to contact the trustee directly.

7. We are fine with paying any extra income to the trustee to further pay down the debt.

My questions are as follows:

Does the trustee take all of the extra income, or part of it? We are both happy to be able to pay more, when we earn extra income.

Are we permitted to reduce the 1099 income with the associated business-related expenses (we have all records and receipts), and the trustee will not object (legitimate IRS tax deducations)?

How is the DMI calculated for this extra 1099 income? Is it 1099 income, less taxes, less business expenses?

So here is a scenario:

Let's say our income was $100,000 when we were confirmed.
We now send a copy of our tax returns to the trustee with an income of $115,500.
The trustee sees a total income of $115,500
There is a difference of 15,500 since the confirmation.
However there are 5,000 in business related expenses
And we wound up having to pay 9,500 in taxes, because my military retirement pay was not withholding enough taxes. We have corrected this for 2011.

So, am I correct in assuming that:

For 2010 filings, the trustee will see the tax returns and nothing will change because of the sizable amount we will pay to the IRS.

For 2011, when we file, if the trustee sees a sizable amount of extra income, she will contact us to pay this amount in a lump sum, or modify our plan and have us pay that extra income over the ensuing 12 months, until the 2012 taxes are submitted, to compare the earned income again for the following year?

I just wanted to get some clarity on this, so I can feel more confident that we are doing things properly, without "stirring the pot" as my attorney says.

Thank you very much for your kindness in responding to this post.

[NowImDownInIt]

I think that with $15k increased income that the pot has already been stirred. Not to scare you or anything, but I would be prepared to hear about this from the trustee because he's not going to look favorably upon this. Expect to be asked to pay a lump sum for what would have been last year's increased payment and be required to modify plan taking into consideration the extra income or facing dismissal. It was very dangerous and unwise to take on such a substantial increase in income without contacting your attorney. Your trustee sounds like the type that follows this very closely and scrutinizes income on a yearly basis if he requires tax return every year. Many don't.

Trustees will usually take tax payments on 1099 income into consideration when forming a plan but when your return has you owing, they don't usually let you take that out of the plan. Ask many on here that ended up owing on taxes and having to budget extremely in order to pay it even with extensions.

You are in a precarious position. Being under 100% payback the trustee is going to want that extra income.

[tobee43]

do you have expenses against the 1099..............i mean if she's a contract employee....she has expenses against the income....cell phone..milage...etc...

i know i set my daughter up with an LLC...since where she moved all they do are 1099's....so we had to make certain all expenses that were applicable and receipt supported were deducted......we came up with over 7k worth of mileage expenses to write off....(and that was JUST the mileage)....the company she works for gives her no phone in her office......so her entire cell bill was also a write off........so just make certain you're examining that aspect as well....i would consult an accountant....

best of luck to you!!!

[chrisdfw]

You should be able to deduct business expenses before figuring the amount that is income.

People frequently underestimate their expenses when figuring income (I can't tell you how
many people who are not making money are actually losing money on their "business" because
they forget about expenses, that is how some end up in bankruptcy)

A good accountant can make sure you are including everything that is appropriate and nothing
that is not. But people leave out things like:
mileage
educational expenses
phones, internet, utilities
subscriptions, fees, dues to professional orgs
software
travel
plus everything else business related