Question re DOING taxes (not about refund)

[PaKettle]

I have a question about doing my taxes or having them done.
I was going to do them via TurboTax this year even though in past years I've been having a CPA do them (just out of laziness on my part). So this year, to save money I was going to do them myself via TurboTax. Nothing complicated, we own no property, will be filing short form.

But that's my question:
Does having filed bankruptcy in 07 make my taxes more complicated in any way? Is there anything different I have to do that TurboTax might not prompt me to do?

Or does bankruptcy (Personal Ch. 7/no asset) have no bearing on doing my taxes?
(My 60 day club period is almost done and I thought I'd wait til it was over to do my taxes.)

Also, if there're any tax experts out there, will changing from a CPA to doing myself prompt an audit or anything?

[coma]

It doesn't have a bearing on your taxes. The only thing I have to do is provide a copy to the trustee and any refund goes to him. I'm getting $15 back, so I hope he can buy a quarter tank of gas with it

[PaKettle]

It doesn't have a bearing on your taxes. The only thing I have to do is provide a copy to the trustee and any refund goes to him. I'm getting $15 back, so I hope he can buy a quarter tank of gas with it

Lucky you, that you only have to give him $15! Ha! But I wonder if they'll take the tax rebate the gov. is about to approve giving all of us?

Are you a tax accountant, or how do you know for sure it does not affect the filling out of the tax forms?

[coma]

Lucky you, that you only have to give him $15! Ha! But I wonder if they'll take the tax rebate the gov. is about to approve giving all of us?

Are you a tax accountant, or how do you know for sure it does not affect the filling out of the tax forms?

I'm not a tax pro or anything, but we've been round and round in BK since 2005 and this is our 3d set of forms done, and there is nothing in the tax forms regarding BK. The only way I know for sure is that I have done this the past few years. Feel free to check the IRS site, but I haven't had anything change tax wise except that I had to turn my refund over the past few years, to th trustee.

[phoenyx]

Most people won't have tax changes due to a bankruptcy, but a few people do. It might be worth having the CPA do your taxes, to save yourself some research time, and to make sure the return is right.

If you want to do your taxes yourself, make sure to read IRS Publication 908, "Bankruptcy Tax Guide", which describes in much further detail what I'm going to say in the rest of the post.

For one thing, you have (had) an option to file two short tax year returns, ending the first short tax year on the day before you filed your Chapter 7 Bankruptcy. This allows the tax due on that short period to be a claim against the bankruptcy.

For another thing, you generally cannot carry back net operating losses or credits to the year the bankruptcy ended in. (You can see the IRS publication on net operating losses to declare to carry forward - instead of back - those losses for up to 20 years in the future.)

Additionally, when you filed Chapter 7 Bankruptcy, a "bankruptcy estate" was established. It is this bankruptcy estate that actually takes your non-exempt assets and dischargable debts. It is a new taxable entity which files its own tax returns. Just like yourself, the estate can have income and expenses. It obtains income from selling the non-exempt assets and cancellation of debt. Your trustee (should have) filed your bankruptcy estate's tax return. It's done on IRS form 1041, which is a lot like an individual's 1040, however it's for Estates and Trusts.

If you ask your trustee, they (should) provide you with a copy of your bankruptcy estate's tax return.

Most of the time, the income the bankruptcy estate gains from cancellation of debt is wiped after IRS Form 982 is filled out. This form reduces your existing "Tax Attributes" to zero, but not below zero, then the excess income from cancellation of debt is not considered income due to the bankruptcy.

Tax Attributes are (and are also reduced in this order) : net operating loss, general business credit carryovers, minimum tax credit, capital losses, basis, passive activity loss and credit carryovers, and the foreign tax credit.

This reduction of the bankruptcy estate's Tax Attributes can affect your tax return, because you get back whatever Tax Attributes the bankruptcy estate ends with (again, not to go below zero.)

If you went into the bankruptcy with no Tax Attributes, and don't have a net operating loss within the two (generally two) years after the tax year your bankruptcy happened in, there often isn't a tax change.

But since there's so much here, it couldn't hurt to have a CPA do them. They probably would like to see a copy of your bankruptcy estate's 1041 return, which you can request from your bankruptcy trustee.

[PaKettle]

Thanks for the informative post, phoenyx!

But here's a follow up question or two:
1) Since I am not quite discharged yet, do I have to wait til I am in order to get this 1041 from the Trustee? And what are the chances he will have it done yet? or how soon after I am officially discharged is he likely to have it? Does this mean I should wait until he sends it to me before I file?
2) Since our joint bankruptcy was a no asset case and there was no business involved in 07, is this whole 1041 thing basically a moot point, anyway?
3) Our trustee does not take tax returns according to my attorney, so does that fact affect any of this? (I'm in Calif.)

I was kinda hoping to avoid using my CPA this year. After what I have noted above, do you still think I should use a CPA?
And if I do not, am I more likely to get audited in a year or two because of it?

(Thanks much for your expert opinion. I realize it's just an opinion, I am not asking for legal professional advice.)

Most people won't have tax changes due to a bankruptcy, but a few people do. It might be worth having the CPA do your taxes, to save yourself some research time, and to make sure the return is right.

If you want to do your taxes yourself, make sure to read IRS Publication 908, "Bankruptcy Tax Guide", which describes in much further detail what I'm going to say in the rest of the post.

For one thing, you have (had) an option to file two short tax year returns, ending the first short tax year on the day before you filed your Chapter 7 Bankruptcy. This allows the tax due on that short period to be a claim against the bankruptcy.

For another thing, you generally cannot carry back net operating losses or credits to the year the bankruptcy ended in. (You can see the IRS publication on net operating losses to declare to carry forward - instead of back - those losses for up to 20 years in the future.)

Additionally, when you filed Chapter 7 Bankruptcy, a "bankruptcy estate" was established. It is this bankruptcy estate that actually takes your non-exempt assets and dischargable debts. It is a new taxable entity which files its own tax returns. Just like yourself, the estate can have income and expenses. It obtains income from selling the non-exempt assets and cancellation of debt. Your trustee (should have) filed your bankruptcy estate's tax return. It's done on IRS form 1041, which is a lot like an individual's 1040, however it's for Estates and Trusts.

If you ask your trustee, they (should) provide you with a copy of your bankruptcy estate's tax return.

Most of the time, the income the bankruptcy estate gains from cancellation of debt is wiped after IRS Form 982 is filled out. This form reduces your existing "Tax Attributes" to zero, but not below zero, then the excess income from cancellation of debt is not considered income due to the bankruptcy.

Tax Attributes are (and are also reduced in this order) : net operating loss, general business credit carryovers, minimum tax credit, capital losses, basis, passive activity loss and credit carryovers, and the foreign tax credit.

This reduction of the bankruptcy estate's Tax Attributes can affect your tax return, because you get back whatever Tax Attributes the bankruptcy estate ends with (again, not to go below zero.)

If you went into the bankruptcy with no Tax Attributes, and don't have a net operating loss within the two (generally two) years after the tax year your bankruptcy happened in, there often isn't a tax change.

But since there's so much here, it couldn't hurt to have a CPA do them. They probably would like to see a copy of your bankruptcy estate's 1041 return, which you can request from your bankruptcy trustee.

[phoenyx]

Thanks for the informative post, phoenyx!

But here's a follow up question or two:
1) Since I am not quite discharged yet, do I have to wait til I am in order to get this 1041 from the Trustee? And what are the chances he will have it done yet? or how soon after I am officially discharged is he likely to have it? Does this mean I should wait until he sends it to me before I file?
2) Since our joint bankruptcy was a no asset case and there was no business involved in 07, is this whole 1041 thing basically a moot point, anyway?
3) Our trustee does not take tax returns according to my attorney, so does that fact affect any of this? (I'm in Calif.)

I was kinda hoping to avoid using my CPA this year. After what I have noted above, do you still think I should use a CPA?
And if I do not, am I more likely to get audited in a year or two because of it?

(Thanks much for your expert opinion. I realize it's just an opinion, I am not asking for legal professional advice.)

First I'll reiterate what you said at the end of your post. This is just an opinion, I'm neither an attorney or a CPA.

I'm not positive at what timeframe in the bankruptcy that the 1041 is filed. I took a quick look through IRS Publication 908, and didn't see a filing deadline for the 1041 for a bankruptcy estate. Since information that would go on the 1041 can change before the discharge, I can't imagine the trustee has filled it out and filed it yet.

I believe that the 1041 is largely moot when the taxpayer goes into the bankruptcy without any tax attributes, but I can't swear that there aren't exception scenarios. If you don't have any net operating loss, general business credit carryovers, minimum tax credit, capital losses, basis in property, passive activity loss and credit carryovers, or a foreign tax credit, then you don't have any tax attributes.

As I mentioned earlier, if you wind up with a net operating loss in the future, you have to make sure that it doesn't carry back to or before the year the 1041 is filed.

The only other thing that I can think of that would make the 1041 relevant if you had elected to file two back to back short years, with the first one ending on the day before your bankruptcy. I believe that this election can only be made by the actual taxpayer, I don't believe the trustee can force that election on you.

Whether the trustee takes your tax refunds shouldn't have any effect on your future returns.

I've heard some people say that having a CPA file a return decreases your chance for audit, some say that it increases your chance for audit, and some say that it has no effect. I haven't looked into it enough to know who I believe, so I'm sorry I can't help you on that question much. That being said, audits are relatively rare. One thing I do know is that if you file your return through a CPA, you are less likely to be assessed penalties by the IRS since you relied on professional advice.

[PaKettle]

Boy, phoenyx, for someone who's not a CPA you seem to know a lot about taxes! ;-)

Thanks for your further information, that helped clarify my situation.

First I'll reiterate what you said at the end of your post. This is just an opinion, I'm neither an attorney or a CPA.

I'm not positive at what timeframe in the bankruptcy that the 1041 is filed. I took a quick look through IRS Publication 908, and didn't see a filing deadline for the 1041 for a bankruptcy estate. Since information that would go on the 1041 can change before the discharge, I can't imagine the trustee has filled it out and filed it yet.

I believe that the 1041 is largely moot when the taxpayer goes into the bankruptcy without any tax attributes, but I can't swear that there aren't exception scenarios. If you don't have any net operating loss, general business credit carryovers, minimum tax credit, capital losses, basis in property, passive activity loss and credit carryovers, or a foreign tax credit, then you don't have any tax attributes.

As I mentioned earlier, if you wind up with a net operating loss in the future, you have to make sure that it doesn't carry back to or before the year the 1041 is filed.

The only other thing that I can think of that would make the 1041 relevant if you had elected to file two back to back short years, with the first one ending on the day before your bankruptcy. I believe that this election can only be made by the actual taxpayer, I don't believe the trustee can force that election on you.

Whether the trustee takes your tax refunds shouldn't have any effect on your future returns.

I've heard some people say that having a CPA file a return decreases your chance for audit, some say that it increases your chance for audit, and some say that it has no effect. I haven't looked into it enough to know who I believe, so I'm sorry I can't help you on that question much. That being said, audits are relatively rare. One thing I do know is that if you file your return through a CPA, you are less likely to be assessed penalties by the IRS since you relied on professional advice.

[phoenyx]

Boy, phoenyx, for someone who's not a CPA you seem to know a lot about taxes! ;-)

Thanks for your further information, that helped clarify my situation.

Thanks! I started out doing my own taxes and when I formed my S-Corp 10 years ago, I decided to do all of its accounting and taxes, so I've really had to dive into a lot. I've thought about becoming certified, but haven't done it yet.