Paying estimated income tax during pre-filing and Chapter 7 process

[syd74]

Hi, I'm self-employed and have to pay the IRS every year. My husband also has a little self-employment income. If we file in November or December, that only gives us a month or two to save all our tax money for the following April, which would be impossible. We usually have to pay $4-5k. We are supposed to pay quarterly but have never been able to do so.

I can't find anything in the IRS bankruptcy tax guide about this. Can people pay toward next year's taxes during the pre-filing period and during the filing period?

Thanks for any help you can give!

[JessMN]

Do you have to pay it quarterly? Can you do it monthly and make that part of your expenses?

[HHM]

Not quite sure I understand your question? Is it...

1. Can you pay estimated tax payments prior to filing chapter 7 BK (implied question being, does that cause a problem for the BK)
2. Or some other question.

First, to answer JessMN's question, yes, it is only quarterly.

When are you planning on filing BK?

You have already missed the deadline for first quarter (April 15).

As for paying "prior" to the BK, the answer will somewhat depend on when you are planning to file BK. 2nd quarter payment date is June 15 (sort of odd, that it is in June and not July, but that is the rule). I really don't see a problem with making ETP prior to filing BK, the only grey area you have is that you have no history of doing so. However, if you consistently have a tax liability every year, then you are required to make ETP's, so starting on the eve of BK is not likely going to be a problem. I don't know, specifically, the rule with regard to ETP's, but there was a case where a debtor designated their tax refund to apply to next years taxes and the trustee lost his challenge, the trustee was unable to get the money from the IRS. So, I imagine the same basic idea applies, the ETP's cannot be undone by the trustee. But the trustee "might" keep your case open until April of the following year to see if you would receive a tax refund (unlikely given your history of owing tax each year, but a possibility).

As for paying "during" the BK, that shouldn't be a problem. Any money you EARN after the BK is filed (for chapter 7 anyway) is yours and you can use it to pay estimated payments.

[syd74]

Yes, we have already missed our deadline for the first filing. We are supposed to file quarterly, but we've never been able to do it. Two years we got on a payment plan with the IRS (still paying), and other times we did a combination of borrowing and using whatever money we had available. We have always owed, and we always pay a penalty for not paying quarterly. I'm going to talk to the attorney about it, but this sounds like it is possible to file quarterly.

[HHM]

I don't really see a problem if you start making your ETP's.

Sounds like you have other budgetary issues you need to get under control...probably why you are headed down the BK path, so good to see you making some wise choices.

[syd74]

Thanks HHM! We've had a lot of bad luck over recent years with illness and work loss, so this will be the thing to get us on the right track with savings, taxes, etc. I'm trying to think about the other side and calm down about my stress over what lies between now and then. A wise friend recently remarked that things are never as awful nor as wonderful as they may first appear. Everything in stride ...

[AngelinaCat]

If you have a payment plan in place with the IRS, once they get notice of your filing the CH7, you will get a notice from them telling you to stop making those payments while you are in the midst of the BK. Once you are Discharged, the IRS will also get the notice, and they will send a letter to you telling you how and when to resume payments.

I am not sure how this works with making estimated payments. The above scenario is what happened with us. We were on a repayment plant because we owed several years.

Good wishes to you!