Tax Preparation and its Implications in Bankruptcy
So it is tax time … as such, I thought it would be pertinent to talk about tax preparation and its implications in Bankruptcy. Many people are not aware of the requirement that a person who is filing for bankruptcy be up to date with his or her tax filings. This simply means that you must have filed all required tax returns prior to filing of your Bankruptcy case. If you owe taxes to the Internal Revenue Service, you may still be eligible to file for Bankruptcy. The requirement only pertains to the actual filing of a tax return and not to outstanding tax debt.
It is important to note that filing for an extension with the Internal Revenue Service in order to obtain an additional grace period to submit your tax return does not exempt you from the requirement to provide the Bankruptcy Trustee with the tax returns. As such, you must prepare and file the required tax return by April 15th and not request an extension from the Internal Revenue Service.
Please make sure to go to a reputable tax preparer or preferably an accountant or CPA. Do not choose a tax preparer on the basis of empty promises for large tax refunds. The most important factors in your search should be competency and knowledge of the tax laws.
One of the most basic errors that we see in tax returns is in the selection of a person's filing status. There are five filing status for federal individual income tax purposes and they are: single, married filing jointly, married filing separate, head of household and qualifying widow with dependent child. Selecting the proper filing status is critical as it has major implications on deductions, exemptions and credits.
If you are legally married and your spouse use the services of another tax preparer, you should make your tax preparer aware of the situation. You should also bring a copy of your spouse's current tax return for review by your tax preparer.
Keep in mind that this writing is not to be construed as tax advice and you must refer to your tax professional for guidance regarding the proper filing status for you. The purpose of this excerpt is to bring awareness to tax filing status misclassification issue. Make sure to have a candid and thorough conversation with your tax preparer as to your marital status, living arrangements and circumstances.