How Bankruptcy Affects You During Tax Season

If you have filed bankruptcy, you know that it is a tough decision, and it can be complex. However, what many people do not think about before filing bankruptcy is how it is going to affect them during tax season. Therefore, today we are covering the subject.

Bankruptcy and Taxes

Usually, when taxpayers file for bankruptcy their taxes are not affected. However, the cancellation of debt generally is taxable. This means that the debts that you have discharged during bankruptcy are excluded from your income based on IRS rules. Therefore, if you receive Form 1099 C you should include the information from that form on your tax returns.

IRS Debts and Bankruptcy

If you have debts owed to the IRS, filing bankruptcy may or may not prohibit them from being able to take the money. It depends on the type of tax debts you have. Usually, if the debt is from years ago it will be discharged. However, if the debt occurred because of fraud or tax evasion you are still responsible for paying the debt. There are some exceptions to this information so make sure that when considering bankruptcy that you voice your concerns to your attorney.

If you’d like to read up on bankruptcy this tax season, be sure to check out our “Rejection of Offer in Compromise: Bankruptcy” in our Seattle CPA¬†Offer in Compromise Guide.

Final Thoughts
Keep in mind that there are two types of bankruptcies that you can file. The Chapter that you file can influence how your taxes are affected after you have filed for bankruptcy. This is why it is important that you speak with an attorney before you make the decision that filing for bankruptcy is in your best interest.

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Seattle CPAAbout Seattle CPA
Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has owned his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.

Huddleston Tax CPAs of Seattle & Bellevue
Certified Public Accountants Focused on Small Business

(800) 376-1785
40 Lake Bellevue Suite 100, Bellevue, WA 98005

Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching, Quickbooks consulting, bookkeeping, payroll and business valuation services for small business. We serve Seattle, Bellevue, Redmond, Tacoma, Everett, Kent, Kirkland, Bothell, Lynnwood, Mill Creek, Shoreline, Kenmore, Lake Forest Park, Mountlake Terrace, Renton, Tukwila, Federal Way, Burien, Seatac, Mercer Island, West Seattle, Auburn, Snohomish and Mukilteo. We have a few meeting locations. Call to meet John Huddleston, J.D., LL.M., CPA, Tawni Berg, CPA, Jennifer Zhou, CPA, Jessica Chisholm, CPA or Chuck McClure, CPA. Member WSCPA.