Changing tax exemptions since they will confiscate tax refund

[StevieD]

Luckily, we have received our refund for the past two years (over 6K this year). This went a long way in paying some household expenses. Currently in a 100% payback plan for Ch. 13 with withdrawal being taken from paycheck every two weeks.

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09/16/2004 - Filed Ch 13
10/28/2004 - 341 Meeting - done
12/16/2004 - Date Confirmed

09/16/2007 - Estimated Date Case Closed

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[lrprn]

Luckily, we have received our refund for the past two years (over 6K this year). This went a long way in paying some household expenses. Currently in a 100% payback plan for Ch. 13 with withdrawal being taken from paycheck every two weeks.

You are very lucky to be in a 100% payback plan, StevieD - otherwise your trustee would definitely take your thousands and give them right to your creditors.

I'm curious why you haven't changed your deductions to get some of that $6,000 back every month for your own benefit during your plan (you could put the extra in your own interest-earning savings account every month, for example). Using the government as a savings plan is the worst return for your dollars possible - 0%.

[aa06a47]

I live in Arkansas too.My trustee does not take our tax refund. I did ask our lawyer if we could send a portion of it to the trustee every year to get us out quicker, but the answer seemed to be negative . The head lawyer( we used a chain - please kick me in the head for that) did send out a letter after we filed, suggesting that we minimize our refund each year by changing our deductions. I finally got around to it this year, but have to be careful, as the way DH is paid, they never take enough out of his check to cover the tax.

Definatly don't want to send any extra in until after 3 years to pay off early, and then that is still up for debate if your under new law.

I live in Missouri, and what the trustee said at the 341 meeting is that they will take anything over 1K in the return. The problem I understand in states like Arkansas is that if they don't take tax returns, they may come and amend your monthly payment. So, if you get back 6000 in taxes, they may raise your payment 500 /month (500x12=6000).

The key is, try and get your deductions where you get back as small amount as possible without having to pay.

[SinkingFast]

Jenny and SF

Is that true? That if you claim too many dependants that increases the likelihood of an audit?

The last 2 years, I have claimed exempt almost all year

What do you guys think I should do?

On an earlier post in this thread, I explained how my comp check gets taxed....basically no matter how you change up the dependants they take the same % out of my comp, which is almost 40% of my income. This makes it difficult to make myself come out even at years end. And between 2 propoerties, I have about $550,000 in mortgage and also Mariied w 2 children so I have a lot of deductions plus my wife is in real estate and writes off many expenses

We keep good records using quicken, but still an audit, is NOT something I am interested in, nor letting a trustee take a refund

Tough Spot, either risk the big refund by keeping expemtions low, or claiming no exemptions, and risking an audiit

Is that basically where I am at?

Alternatives?

Like I said, claiming a larger number of exemptions, i.e. lets say 9, doesnt effect it to much bc the comp checks are still dinged at 40%

Thoughts? If any?

When we were audited, the IRS Auditor explained how people get picked for an Audit.

Every year when you file, you get points for each line on the forms that you fill in. What forms you use. Etc. Over time, each filer establishes a points average.

If you have a year where your points varies too much from your norm, the computer spits your return out. A human Reviewer takes a look at your Return, in relation to previous years Returns. If whatever changes took place that caused the variance look reasonable to the Reviewer, your Return get's passed on.

If the human Reviewer feels that the changes are out of line, or couldn't have possibly occurred, or something doesn't match up with the 1099's they received, your Return gets pulled and you get called in for an Audit.

Changing your exemptions off and on during the year will probably not trigger an Audit. We know Commission Based Sales people that do the same thing. Max out exemptions during lean months, then adjust during their big sales months. They do that so they'll always have a guaranteed minimum income level, month to month, that they can budget with.

Uncle Sam wants you to pay in 90% of what you owe in taxes every year, as the year progresses. If you don't, then you're subject to penalty at the IRS' discretion. We withdrew a Retirement IRA last year. Opted not to have the 10% early withdrawal taken out. Wound up owing the IRS big time. And weren't assessed a penalty for under payment. I imagine if you consistently underpaid the IRS, you'd probably have to pay penalties.

http://www.irs.gov/taxtopics/tc306.html

And for a laymen's explanation of when the IRS will assess a penalty:

http://ncnc.essortment.com/taxespenalties_rlcx.htm

And here's a website that explain how the IRS decides who get's audited and why:

http://www.wwwebtax.com/audits/audit_avoiding.htm

Pretty much the same thing the Auditor told us plus some additional things you should watch out for.

[anonymuse]

Once the IRS gets the from from your employer, if you're claiming over 8 exemptions, they want answers then--but it also depends on how backed up they are.

I've been in situations claiming anywhere from 3-7. Two years ago, I was basically on unemployment and then had a very high paying job for 6 weeks--that's when I claimed 7 exemptions since I knew I would wind up getting everything back in a refund due to deductions (i.e. mortgage, etc.).

A major red flag is increasing your deductions when you owed money the previous year (barring no substantial changes in income.)

I wound up owing $25 for federal taxes ($30 return on state.) Sometimes you will compute that you need between 3 and 4 exemptions. I claim 3 exemptions and then the calculated amount in $ of how much needs to be taken out. Not letting the gov't hang onto my money any longer than they need to. We owe interest if we're late on them, but if they're holding our money, we never accrue interest.

[no_it_all]

Since the trustee will ask for my tax refund check for all 4 years I'm on the plan, would it be dishonest or against any rules if I go to my employer and claim more exemptions?

I am not sure if it makes any difference...

If you get a refund check the trustee takes it and pays creditors..

If you don't get a refund check the trustee takes the resultant extra net income and pays creditors...what <exactly> is the difference?

In a Chapter 13 plan doesn't the Trustee subtract your gross income from your net income to figure out how much you have for paying back creditors?
I would think that in that process, they would have to know what your tax liability would be for the year and work on that figure, not what it says on your paycheck stub..

[anonymuse]

In a Chapter 13 plan doesn't the Trustee subtract your gross income from your net income to figure out how much you have for paying back creditors?
I would think that in that process, they would have to know what your tax liability would be for the year and work on that figure, not what it says on your paycheck stub..

You'd think that should be part of the process to make sure that (a) people aren't beefing up their exemptions to get a refund, and (b) people aren't setting themselves up for failure by not taking enough out and will wind up unable to pay their taxes on April 15th.