Tax Filing Laws

• You should be aware of several laws regarding taxes when you are filing bankruptcy. First, if you fail to file taxes or an extension request in a timely fashion during your bankruptcy proceedings, the judge may dismiss your case entirely. If you have late returns when you enter your bankruptcy, you will probably have to file all these as soon as possible. If you are filing a Chapter 13 bankruptcy, the court will need your previous four years' tax returns, so you must get any late returns filed as quickly as you can.
  
  

Timing Taxes If You Are Owed a Refund

• If you file your taxes after you file for your bankruptcy, the bankruptcy trustee will probably be able to count your refund as part of the bankrupt estate. This means the trustee may use your refund to pay off your creditors, rather than giving it to you. If you file your taxes and receive your refund prior to filing bankruptcy, you will have much more control over the money. When considering when to file your taxes, keep in mind that your bankruptcy will span about ninety days, from filing to closing. Because the rules governing tax returns as an asset in a bankrupt estate are fairly complex, it is smart to consult a bankruptcy attorney for specific advice.
  
  

Timing Taxes If You Owe the IRS

• Because you cannot bankrupt recent taxes you owe, it will do you no good to delay or hasten filing taxes if you owe the IRS. You will be unable to discharge your most recent taxes in your bankruptcy. If you did not file old taxes at least two years ago, no matter what year they were owed in, you will not be able to discharge them either. You will still need to file all your taxes, even if you can't discharge them in the bankruptcy.
  
  

Reporting Taxes During Bankruptcy

• If you file a Chapter 13 bankruptcy, you will file your standard 1040 tax return. If you file a Chapter 7 bankruptcy, however, you will have two separate returns. Your personal return is a 1040 and is separate from any part of your holdings involved in the bankruptcy. Your bankruptcy trustee is responsible for a 1041 return filed for the bankrupt estate. Because failing to file appropriate and timely tax returns is grounds for dismissal of your bankruptcy case, follow up with the trustee to ensure all tax returns were properly filed.