Which of these would you include on Schedule I as income?

[gman]

I am under the impression that some districts used to take the "mechanical approach" to income - and simply copied the Means Test income (average of last 6 months) and used that as income on Schedule I.

Given the recent Supreme Court ruling that income on Schedule I should include any known changes in future income at the time of filing, what would you do in this scenario?

Scenario:

* Debtor filing on Oct 1 (so 6 month look back would be April - September)

* Debtor was paid a salary of $5k/mo for the months of Apr, May and Jun

* Debtor lost job on Jun 30 and received his last paycheck on that day.

* Debtor received unemployment income (assume the state requires counting it) of $1k/mo for Jul and Aug - but did not receive any payments in Sep.

* Debtor decided to start his own business as a contractor (1099 employee) and received $2k in Sep income.

Questions:

* From all I have read, the Means Test would still take into account all of the income above (and divide by 6 to get a monthly income for the Means Test.) Do you agree or disagree, and why?

* Given the Lanning case, I would think that on Schedule J the debtor needs to list his 1099 employee income only because (a) he no longer has the salary job and (b) he no longer is collecting unemployment. Do you agree of disagree, and why?

-------------------------------------------

The Supreme Court decision on the Lanning case is linked here if you need to see it:

http://www.supremecourt.gov/opinions/09pdf/08-998.pdf

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Thanks to all who chime in...

[catleg]

I agree with you on both counts. The means test is backward looking, the schedule I is forward looking.

[tobee43]

Questions:

* From all I have read, the Means Test would still take into account all of the income above (and divide by 6 to get a monthly income for the Means Test.) Do you agree or disagree, and why?

i do agree, to some point, provided that the example person is in a district which includes the unemployment ins. payments....and we need more info...did this example person make a profit within the first few months of a new business...doubtful.

* Given the Lanning case, I would think that on Schedule J the debtor needs to list his 1099 employee income only because (a) he no longer has the salary job and (b) he no longer is collecting unemployment. Do you agree of disagree, and why?

within the short amount of "self" employment in your example i would say there would be no 1099....how can there be...there are start up cost etc...also it will depend whether this person started their business as a subchaper s, sole prop, or llc...all of them have difficult income and outcome ramifications. start up cost etc...all which factor into the self employment equation ...most people do not even have a salary their first year or two...i'm certain there are some exceptions.

gman...

next time when we have to have a test...can it be BEFORE lunch..i'm so much for alert! i only took a quick peek at the courts decision.

[catleg]

I assume that a "1099" employee would report top-line (gross) income on schedule I, and higher taxes on schedule J. One could just as easily report the net income on schedule I, I supposed, it probably depends on the type of business. I mean, a 1099 implies that a 1040 schedule C will be filed to determine income but I'm not sure how a typical trustee deals with that.

The point about Unemployment not being reportable on the means test is another thing I forgot about.

But overall I think gman is in the right mindset.

[gman]

Questions:
did this example person make a profit within the first few months of a new business...doubtful.

I am pretty sure that the amount of INCOME for self-employed people is the GROSS income - regardless of incurred expenses. This means it must be a positive number on Schedule I.

I found the following quote from an article entitled: "B22A / B22C - INSTRUCTIONS FOR PROPER COMPLETION OF THE MEANS TEST FORMS -
THE 150 MOST COMMON MISTAKES"

Published by:
The University of Texas School of Law
5th Annual Consumer Bankruptcy Practice Conference
August 14, 2009

Source: http://www.baumerlaw.com/pdfs/B22A.pdf

Quote:

within the short amount of "self" employment in your example i would say there would be no 1099....how can there be..

True....I was implying it is 1099 income by definition - not that they already received their year end 1099 tax statement.

.there are start up cost etc...also it will depend whether this person started their business as a subchaper s, sole prop, or llc...all of them have difficult income and outcome ramifications. start up cost etc...all which factor into the self employment equation ...most people do not even have a salary their first year or two...i'm certain there are some exceptions.

For tax purposes, I agree. But for the purpose of completing Schedule I - it seems like the direction given in the link above is what one would need to do.

gman...

next time when we have to have a test...can it be BEFORE lunch..i'm so much for alert! i only took a quick peek at the courts decision.

LOL! I'll make sure to hit you up for advice on a full stomach next time!

[tobee43]

LOL! I'll make sure to hit you up for advice on a full stomach next time!

thanks..i would appreciate that. i'm best early in the mornings thought wise..LOL!


by the way gman....i did locate my schedule j...but i can't locate my means test....

i'll pm tomorrow with some details if you would like.

also...i want to take more time to look at: Quote:
Originally Posted by tobee43
Questions:
did this example person make a profit within the first few months of a new business...doubtful.

I am pretty sure that the amount of INCOME for self-employed people is the GROSS income - regardless of incurred expenses. This means it must be a positive number on Schedule I.

I found the following quote from an article entitled: "B22A / B22C - INSTRUCTIONS FOR PROPER COMPLETION OF THE MEANS TEST FORMS -
THE 150 MOST COMMON MISTAKES"

Published by:
The University of Texas School of Law
5th Annual Consumer Bankruptcy Practice Conference
August 14, 2009

Source: http://www.baumerlaw.com/pdfs/B22A.pdf

[tobee43]

ok...it's early enough and i'm awake enough to elaborate on this "self" employment 1099 issue....

it's simply NOT going to happen within a month or 2. additionally business owners when a salary is issued it most time can be reported in "different" manners depending on, once again how the business is set up...(i.e. subchapter S..llc etc.). that being said any business...or let's put it this way...99.99999 percent of any new businesses have start up costs...etc. a 1099 comes in different forms...1099S...example is drawn usually for a repayment of perhaps a capitol loss. (business a does X amount of damage to your property and pays you the "irs "over the limit allotted amount considered taxable and must issue in the form of a 1099s the full amount reinbursted for the loss) there are also 1099A, for acquisition or abandonment of secured estate, 1099-B are for those transactions which take place between a broker and barter exchange. 1099-C is for those transactions which were made for debts but then canceled. so one and so forth...didn't mean to get into that much detail...but there is so much more to a 1099...

secondly....usually,depending on the business the income from the business also may use a K1...and not even a 1099...when someone is 1099'ed it's usually because they are consultants...or employee without company benefits (contractors)...so when you say contractor do you mean building contractor....or computer consultant??? both have a "cost" of doing business and once again to put an amount as income the profit and loss ...it cannot be based on gross...it's just the correct way to figure the actual income.

i just noticed.....look at schedule j....line 16.......that explains my point. the expenses are clearly to be deducted from a a loss of business expenses...of course, as i previously stated you would have to have records from your profit and loss records to
substantiate your expenses. easy to do when starting up a business...including "good" will...

[gman]

Scenario:

* Debtor filing on Oct 1 (so 6 month look back would be April - September)

* Debtor was paid a salary of $5k/mo for the months of Apr, May and Jun

* Debtor lost job on Jun 30 and received his last paycheck on that day.

* Debtor received unemployment income (assume the state requires counting it) of $1k/mo for Jul and Aug - but did not receive any payments in Sep.

* Debtor decided to start his own business as a contractor (1099 employee) and received $2k in Sep income.

So - given what the responses I have seen, would this be a case where....

1. The Debtor's "last 6 months average income" = [ (3 x 5k) + (2 * 1k) + (2k) ] / 6 = 19k / 6 = $3,167 / mo. This would go on the Means Test B22A. Correct?

2. The Debtor's "projected income" for Schedule I is only $2,000 (based on the fact he no longer has his old job, is no longer on unemployment and the income is thus based on his one month of self-employment only?

3. If the Debtor makes self-employment income in the month(s) AFTER filing but BEFORE his 341, he should "play it safe" and not have a spike in self-employment income (over the $2k amount) BEFORE his 341 hearing?

This last question is a big one (at least for me) as it appears like the Trustee's have the right to question the BK discharge if a Debtor takes a new job with higher income after filing and before the 341.

(Source: http://www.georgiabankruptcyblog.com...on-events.html)

Thanks to all who respond to the 3 questions above.

[tobee43]

1. The Debtor's "last 6 months average income" = [ (3 x 5k) + (2 * 1k) + (2k) ] / 6 = 19k / 6 = $3,167 / mo. This would go on the Means Test B22A. Correct?

the means test MUST vary state to state because my 22 a and b do NOT apply to income.

2. The Debtor's "projected income" for Schedule I is only $2,000 (based on the fact he no longer has his old job, is no longer on unemployment and the income is thus based on his one month of self-employment only?

wow...our sch i has no where for "projected income" just estimated average...in which case you really don't know do you??

3. If the Debtor makes self-employment income in the month(s) AFTER filing but BEFORE his 341, he should "play it safe" and not have a spike in self-employment income (over the $2k amount) BEFORE his 341 hearing?

i agree...or put the monies BACK into business expenses for start up costs.

[gman]

the means test MUST vary state to state because my 22 a and b do NOT apply to income.

B22A refers to the name of the Means Test form - not "Lines 22 A & B" - Sorry for the confusion.

wow...our sch i has no where for "projected income" just estimated average...in which case you really don't know do you??

The recent Lanning case implies that one should put down "projected" income on Schedule I.

--For those that have a salaried job - that amount is a given.

--For those with commission income - it is likely the last 6 months of commissions.

--For those that are unemployed - I would think you put down your unemployment income only.

--And finally, for those that just started a business, like the scenario we are discussing here, you put down your self-employed income divided by the number of months of self-employment.

i agree...or put the monies BACK into business expenses for start up costs.

This could be a heck of a BK planning strategy!!!!

Does anyone see any "problems" with this approach????

[tobee43]

--And finally, for those that just started a business, like the scenario we are discussing here, you put down your self-employed income divided by the number of months of self-employment.

and if you DO not include cost in start up....then add them into your regular "living" expenses...ie transportation expense......UP......etc.