How To File Taxes After Declaring Bankruptcy

January 24, 2020

When you’re mired in debt, bankruptcy may be the only solution. However, such a move can drastically affect your future finances, including tax filing. Taxes are complicated in the best situation, but filing after bankruptcy may require Los Angeles tax preparation services to ensure you’re meeting all your obligations. If you’re filing for the first time since declaring bankruptcy, here are a few things you need to know.

Do You Still Have To File Taxes?

Yes, you still need to file taxes, though the process may be different. In fact, failing to file can negatively affect your bankruptcy case; it may even be dismissed or converted.

The good news is that if you’re struggling with red tape or your case is in limbo when April 15 rolls around, you can apply for an extension. This gives you an additional six months.

What Tax Form Should You Use?

This is a tricky question and varies by the situation; for accuracy, you should confer with Encino tax consultants. Basically, two forms need to be submitted to the IRS: a 1041 bankruptcy estate form and a 1040 independent form. The big question is which one you’re responsible for. This depends on which bankruptcy code chapter you’ve filed under:

• Chapter 7
• Chapter 9
• Chapter 11
• Chapter 12
• Chapter 13
• Chapter 15

If you retain control of your assets and are the estate trustee in a Chapter 11 case, you probably need to file both. On the other hand, if you’ve surrendered control of the estate as happens in a Chapter 7 case, you likely only need to file the 1040 independent return.

What Happens to Your Tax Return?

The fate of your return rests on the date of your bankruptcy. If the return is for income you earned after bankruptcy, you generally get to keep it. If it’s based on income earned before bankruptcy, it usually goes to the estate. However, you may be able to keep it by filing an exemption.

Bankruptcy is never simple, but it doesn’t have to cost you a tax return. If you’re in the middle of bankruptcy, contact Encino tax advisors to help you through the filing process.