Claiming bankruptcy forces many taxpayers to learn about the associated tax implications. In other words, you need to be extremely careful when filing your income taxes to avoid the penalties and consequences of misfiling. For example, did you know that the IRS can actually dismiss your bankruptcy case if you fail to file any of the required tax forms?
To help you avoid making any mistakes while filing your income taxes, here are a few tips from the bankruptcy attorneys here at Cutler & Associates:
- Contact the IRS to determine what remaining tax liability you have after your bankruptcy filing. Although you likely did this before you filed for bankruptcy, your owed back taxes could have increased between the time you filed and now.
- Although the cancellation of debt is a taxable event, taxpayers claiming bankruptcy may avoid claiming the canceled amount of debt as income by checking box 1a on IRS Form 982 and placing the total amount of canceled debt shown on IRS Form 1099 under line 2 of Form 982.
- Because filing for bankruptcy creates a bankruptcy estate, the IRS requires that an estate producing any income become taxable entities. Individuals with income-producing bankruptcy estates are required to file a Form 1041 tax return. This form is filed separately from your individual income tax return.
If you are planning on filing your own income taxes this year, be sure to contact the experienced bankruptcy attorneys here at Cutler & Associates, Ltd. before you do. As one of the premier bankruptcy law firms in Illinois, Cutler & Associates, Ltd. will protect you from the IRS for any mistakes made on your filings.
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