Question Means Test - Estimated Taxes

[mikey2277]

I've been searching and searching and can't seem to find the answer. The closest I found was this multiple choice question from a sample bar test, but it doesn't give the answer.

Assume Debtor is trying to determine disposable income. Debtor has not paid quarterly, estimated taxes. Did Debtor "actually incur" taxes such that he should list a monthly amount on line 30?
a) Yes. Debtor created a liability when he earned the net profit.
b) No. Since payment was not made to the U.S. Treasury, it was not incurred.
c) ?

My liability for Jan - Jun of this year was $4000, but I was only able to pay $1250. Which should I use? Thanks for your help. An a) or b) answer should suffice. ;)

[HHM]

Your income is your GROSS income, regardless.

You would then deduct the estimated tax and amortize it as a monthly expense. This assumes the tax is a real obligation. So, if you would make estimated payments of $8,000 over the course of the year, you would deduct $666.66 as an expense. Some trustees may object to taking the expense since you didn't actually incur the entire amount and you would need to make sure that the amount your claiming as the estmiated tax is your exact tax liability (e.g. no overwithholding to reduce DMI on the means test).

[mikey2277]

See...that is the answer that makes WAY more sense to me. The paralegal for my lawyer that is working out the ch 13 plan seems to think otherwise and only put in the amount that was paid ($208) for the previous 6 months rather than the liability amount due($666) and then hiked up the ch 13 payment because of it and I can't seem to convince her otherwise.

Do you have bk code or documentation that can back this up? I could REALLY use it.

Surely the trustee would catch the discrepency that the taxes listed aren't even a 1/3 of the amount needed to cover the gross? Especially since I am right in line with my earnings last year and I paid almost 6 times that amount in taxes? With the way she is doing it, it is a double whammy. I'm spending all my expendable income on the ch 13 payment and I will be consistently behind on my taxes because of it with NO possible way to catch up this years taxes.

I'm really upset about all this. Your help is REALLY appreciated.

[LadyInTheRed]

mikey2277, talk to your attorney directly about this. Point out that the form itself says to "enter the total average monthly expense that you actually incur for all federal, state, and local taxes, other than real estate and sales taxes, such as income taxes, self-employment taxes, social-security taxes, and Medicare taxes." It doesn't say to enter the amount you actually pay. If you read the questions underneath that one, they use the words "pay" and "expend", not incur.

If the attorney takes the same position as the paralegal, can you delay your filing until September and pay $458, plus whatever tax liability you incur this month?

[mikey2277]

Thank you both for your help. I think the word "incur" should speak for itself, but we'll see. Seeing the lawyer in an hour. SOOO glad I did some research before just giving the go on this. You all are lifesavers!

[mikey2277]

The lawyer and the sr. paralegal got it worked out and answered ALL our questions and set the records straight. It's like you both said, it's tax liability NOT the amount you paid. Got the payment back down to a reasonable amount and we are moving forward. Here's to a fresh start....