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Tips for preparing tax returns after bankruptcy

If you are considering filing for bankruptcy or have filed in the past year, it is important to understand how that impacts the preparation of your tax returns. Filing taxes after a bankruptcy should be no problem - as long as you understand when and how to file.

According to the Bankruptcy Code, debtors should file an income tax return for the current tax year, or request an extension from the IRS. If you fail to do this, your bankruptcy case could be converted or dismissed. It also is necessary to file an estate tax return (Form 1041) for the bankruptcy estate. 

For Chapter 7 and Chapter 13, the estate tax forms are filed by the bankruptcy trustee. In filing for bankruptcy, you have asked for a trustee to be appointed to handle your financial affairs, which includes the taxes on the bankruptcy estate. According to IRS Publication 908, Bankruptcy Tax Guide:

"The court appointed trustee or the debtor-in-possession is responsible for preparing and filing all of the bankruptcy estate's tax returns, including its income tax return on Form 1041, U.S. Income Tax Return for Estates and Trusts, and paying its taxes."

Below are five tips for bankruptcy filers, courtesy of Turbotax:

  1. Seek an attorney for assistance throughout your bankruptcy case. Tell your attorney whether you have filed a return for each of the past three years.
  2. If you have not filed yet this year, consider doing so before filing for bankruptcy, unless you know you will receive a substantial refund.
  3. If you have filed already, make sure your attorney has all of your tax records and a general explanation of how you used any refund money. The trustees always ask.
  4. If you get a refund and are considering bankruptcy, do not pay bills with the tax money. Doing so will slow the processing of your bankruptcy case.
  5. File your taxes on time each year. The IRS assesses separate penalties for failure to file and failure to pay, and they will find out if you owe them money even if you do not file. 

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