Believe it or not but tax season is right around the corner. If you recently filed for bankruptcy, you are probably wondering if it will affect the way you file your income taxes. The answer to that question is yes, your pending bankruptcy will affect how and when you file taxes this year.
According to a helpful article from TurboTax, a person who is currently going through the bankruptcy process should not file their tax return as they normally would. But a person going through bankruptcy will still need to file an individual tax return or request an extension, or the bankruptcy could be converted or dismissed.
In most situations, both a 1040 individual return and a 1041 bankruptcy estate return must be filed. In a Chapter 7 bankruptcy, a taxpayer would typically file the usual 1040. The bankruptcy trustee would then file a Form 1041 for the bankruptcy estate.
In a Chapter 11 bankruptcy, the taxpayer may be responsible for filing the 1040 individual return as well as the 1041 bankruptcy estate return. In a Chapter 13 bankruptcy, the taxpayer will still need to file the 1040 individual return.
At the top of its list of “five tips for bankruptcy filers,” TurboTax recommended working with an attorney who has experience handling bankruptcy cases and tax issues. If you are currently going through bankruptcy with an attorney’s help, he or she should be able to provide you with guidance.
The article also suggested waiting to file for bankruptcy until you have already filed taxes, if possible.
Additionally, if you receive a refund and you are already in bankruptcy, be prepared to explain to the bankruptcy trustee how you spent the refund. As we explained in a past blog post, the trustee can demand money that you no longer have in your possession, in some cases.
For more information on taxes and bankruptcy, including whether tax liabilities are dischargeable in bankruptcy, see our Milwaukee Bankruptcy & Taxes Attorney page.
