Actual Taxes on the Means

[laurannm]

When you are figuring what your actual taxes may be for the means test (line 25), how would a UST typically calculate the monthly figure?...would it be an estimate divided by 6 months, or divided by 12 months?

Here is my current dilemma. My lawyer is insistent that we can use taxes withheld on the means test, but I am pretty sure she is wrong. Looking at some cases on Pacer for above-median in my district, the UST as filed the statement of presumed abuse, and one of the items she mentions is taxes withheld vs actual. She typically will file as part of her motion a corrected means test. Problem is that I am not sure how the UST comes up with the number for line 25 (the UST mentions based on the debtors tax rate).

Whether or not we use taxes withheld makes or breaks our means test result, primarily due to a cash gift we received back in March from my parents to help make ends meet. I know we can wait until October so that the gift is a non-issue, but obviously if I could file in July (like our original plan) I would rather do that. But not at the expense of being pushed into a Chapter 13.

This year we received a sizable refund, and a small part of my income (about $6800) is 1099-MISC. I was able to show a net loss on this self-employment income last year, but the expenses I used no longer apply for this year, thus I will be paying self-employment taxes when we files taxes next year.

Other lawyers I met with a few months ago also indicated that taxes withheld would be ok to use on the means. Not sure what to do...

If I use one of the readily available tax estimators on the web, I show myself owing around $4000 in Fed taxes, which includes self-employment tax

Thoughts from anyone?

[laurannm]

Anyone? Little nervous about this...

[soleprop]

i seriously have no idea, but i wanted to pipe up just so you didn't feel alone. someone bk-smart will wander in here soon though and help you out!

[laurannm]

hey thanks!

I was thinking too...Lets say we file in July anyways and take our chances, and the UST in fact pushes us into a 13. Could I then convert to a Ch 7 a few months later (assuming I qualify, which I believe I would)?

[laurannm]

Anyone else out there? I'm not really sure what to do....

Thanks

[hrh25]

laurannm,

I talked an attorney regarding this and i was told that you put down your with-held taxes, but if you get a huge refund they can make you split it up and use as income. IE, say you are -$50 in disposable income and you get back $2,500 back in refund for the past year or two, the trustee can make you change your dedutctions and us that money to push you into chapter 13 because now you will have enough disposable income to fund chapter 13.

I think it will all depend on how close you are and maybe the size of your debt and income and of course how nice the US Trustee is.

Hope this helps.

HRH

[diviaruba]

lauranmn, to save you a little time on this without searching every thread, try here:

http://www.bkforum.com/showthread.php?t=22272

There is no definitive answer. The US Trustee has staked out a position, but district by district, there are different customs. Gross over-withholding can be seen as skewing the means test and will certainly invite further scrutiny. Same thing for folks on the edge, where a couple hundred a month would be the difference between a 7 and a 13.

[diviaruba]

It's really quite easy for most folks to get a fairly accurate picture of their tax liability at any time during the year, particularly if income and deductions are relatively stable. The IRS withholding calculator will estimate your total tax liability, and give advice as to adjusting withholding exemptions at any point during the year so as to avoid under- or over-withholding.

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

Trust me, the UST's tax analysis software is quite up to the task as well. In districts where they can win on this issue, they will push it - and it sounds like yours is one of them.

[laurannm]

I think your right unfortunately, they will probably push it and win. The only question I have is my expenses related to self-employment. For the last couple of years I have been able to claim enough expenses to offset that income (mostly mileage), plus the past few years I have donated to charity. However, this year I will not have those expenses to use, thus I will end up paying self-employment tax next year. Nor have I been making any charitable contributions. So I am not sure how the UST will view this, since my tax liability will be significantly different then past years

[laurannm]

What do you think...should I just wait until Oct, so that the gift is a non-issue? At that point, even with taxes incurred based on last years tax return, we would be fine on the means. I do anticipate a small raise in the next couple of months, but not nearly enough to cause a problem on the means. Then again, if the stimulus counts as income, then we are screwed no matter what month we file

If we decided to roll the dice and not get the Ch 7, any reason why we couldn't convert come Oct.?

Thanks again for everyone's feedback

[laurannm]

One other question...on your Schedule I, do you include actual taxes incurred or taxes withheld (where it says Payroll Taxes, Line 4)?

[diviaruba]

Again, technically speaking it is the "Estimate of average or projected monthly income at time case filed". You would certainly want to be as accurate as possible, because this is scrutinized as well.

[laurannm]

So even on the Schedule I, for payroll taxes, I still need to estimate my actual tax obligation and enter them in?

Sorry to beat this issue to death, just trying to plan the timing of all of this

Thanks again

[diviaruba]

That's what the schedule says. If you can defend your calculations to the C7 trustee and the UST, so much the better. Again, a lot depends on the district. Good attorney who knows the ins and outs worth their weight in silver. As I've said before, a lot goes on behind the scenes that mere mortals will never know. Anybody close to the bubble would be wise to heed this. Enough said.

[laurannm]

Thanks again for your insight. Since I originally wasn't planning on filing until July at the earliest, I made an appt with another lawyer for a consult on Monday. Looks like he has done some recent above-median cases and was successful