ch 7 this week, tax return Feb 2011???

[Maine]

If we file this week is there a chance they will want to grab my tax return 6 months from now?

reason: I need to increase my withholding to make sure I do not owe an underpayment penalty, but increasing *might* mean a refund. I don't want to avoid one penalty just to cause another one.

Thoughts?

[OhioFiler]

If we file this week is there a chance they will want to grab my tax return 6 months from now?

reason: I need to increase my withholding to make sure I do not owe an underpayment penalty, but increasing *might* mean a refund. I don't want to avoid one penalty just to cause another one.

Thoughts?

The trustee could demand 7/12ths of your 2010 refund you receive next year. If you had barely any refund this year or owed, I doubt the trustee will bother.

If you are increasing your tax withheld to fool the trustee into thinking you have less disposable income I doubt it will work.

[tcreegan]

Not refund from current tax year

Hi Maine !

I have seen many posts on this, and all have said that the trustee wanted to see the refund from the last tax year filed (last year) and never seen one want to know about next year's refund.

.....just from what I have seen around this forum....

Hope everything is going well for you!

Tom in Colo

[Maine]

The trustee could demand 7/12ths of your 2010 refund you receive next year. If you had barely any refund this year or owed, I doubt the trustee will bother.

If you are increasing your tax withheld to fool the trustee into thinking you have less disposable income I doubt it will work.

That made me smile. I truly appreciate the warning.

If it was even close on dmi I would not make any changes, I agree that they are not fooled by games, and I do not want to do anything "funny" with my numbers. We are increasing withholding because if not we will be hit with a 25% underpayment penalty. The increase does not change our dmi to negative (it was already negative.)

I am trying to weigh out which penalty is worse: definite 25% underpay or the chance of losing a maybe refund to the courts.

[angles]

I have never heard of the partial tax refund claim, only what Tom has posted (previous year tax).

[OhioFiler]

I have never heard of the partial tax refund claim, only what Tom has posted (previous year tax).

Well then perhaps you haven't been listening.

Many BK courts consider the anticipated refund to be an asset. If one files in August, they are filing as of July 31 as to income and assets. Thus, 7/12ths of the 2010 refund is earned as of August 1.

[keptdigging]

Underpayment penalties are basically just interest. At a reasonable (not a credit card bank) rate. Don't sweat it. If you underpay by $100, you'll wind up owing something like 5 per cent interest on $50... so instead of owing $100, you owe $102.50.

Also if you're close (I forget the exact rules) you generally don't owe a penalty at all.

I am self employed and I never bother to make the estimated payments.... I just let the IRS send me a bill for the "penalty" each year. It winds up being 2 to 4 per cent of what I owe.

And since you're having withholding, you'll just owe (worst case) a bit, it'll be a few percent of that little bit.

So having a refund and losing it to the trustee is a much bigger/expensive potential risk. But they clean up because people don't plan ahead and adjust their withholding.

[keptdigging]

Just to clarify: the 25% late payment penalty is the maximum penalty if you don't pay your tax by the date the RETURN is due (generally April 15 for an individual filer.) (It's actually 0.5% per month up to 25%... so 25% would mean you were 50 months late.) That's plus interest.. but if you underwithhold and pay the balance on April 15th, you only owe interest. And, in fact, if your withholding covers 90% of your taxes you're fine.

Got out my trusty JK Lasser just to be sure.

No reason to risk having a trustee take your tax return.

[keepmine]

Ask your attorney if you have available exemptions to protect any refund.

[Maine]

WOW Keptdigging! Thanks! I was way wrong on this one. 1% late penalty, not 25% GOOD!!!

We won't be at 90% of taxes due to avoid the penalty, but 1% penalty is ok.

I just talked to Lawyer about protecting any kind of cash, up to $400 is the limit in Maine.

[Maine]

double post

[helpmeout]

That made me smile. I truly appreciate the warning.

If it was even close on dmi I would not make any changes, I agree that they are not fooled by games, and I do not want to do anything "funny" with my numbers. We are increasing withholding because if not we will be hit with a 25% underpayment penalty. The increase does not change our dmi to negative (it was already negative.)

I am trying to weigh out which penalty is worse: definite 25% underpay or the chance of losing a maybe refund to the courts.

You can have an exact amount withheld from your pay, my withholding isn't based on my exemptions but on a specific amount that I told the PR to withhold. Do an estimate using the IRS website and try to only have what you will owe withheld.

[Silver26]

My trustee stated at the beginning of our 341 that everyone is to send their tax refund to the trustee and he would decide how much we get.

[tcreegan]

which tax year?

Hello Silver26,

Which tax year was the trustee talking about, 2009 (get refund in 2010) or 2010 (get refund in 2011) ?

Tom in Colo