It is that time again, the time when we all sit down with the accountant or the nice girl at the local tax prep place and figure it if we owe the government or if the government owes us.

Let’s start with my basic tax time rule:


I don’t like tax refunds.  A tax refund means you gave the government an interest free loan.  I am thrilled when my accountant comes back to me and says “You owe $300.00.”  That means that I got my math almost spot on.  I figured out, somehow, exactly how much I needed to give the IRS and gave them only that amount.  If you don’t owe, that money you are getting back, be it $500.00 or $5,000.00 was sitting in the government’s coffers earning interest for them and NOT YOU.  Why?  BECAUSE A TAX REFUND IS NOT A SAVINGS ACCOUNT!  Uncle Sam isn’t going to pay you interest.  Not going to happen.

So now is the time to ask your CPA if you should walk into HR and adjust those exemptions.  Me, I am a fan of taking your exemptions.  They are yours!  You are entitled to a little more money in your paycheck.  I am not saying walk into HR and take 17 exemptions (unless you have 17 kids…in which case you should also have a reality show).  Go into HR and tell the payroll person, I am married with two kids and adjust your W-4 to Married with three exemptions instead of single with zero.  It can make a real difference in your budget and you may find you have money leftover to save thanks to keeping your own money now instead of a $5,000 refund in April.

The best part, you may STILL get a refund, though slightly lower, depending on your circumstances.  In New Jersey we have such high property taxes, that when combined with our mortgage interest, sales tax, charitable contributions, medicals and kids, even the guy with 17 exemptions might still have a shot at a refund (seriously what would the property taxes be on a house that fits 17 kids in New Jersey…yikes…)

So have the chat with your accountant about whether adjusting your exemptions is right for you because TAX REFUNDS ARE NOT SAVINGS ACCOUNTS….which leads to my next point…

Some of my clients tell me, “But I am not a good saver” or “If I had it I would spend it”.  Ok.  So find a way to not do that.  My personal favorite is to make saving money super convenient, an automatic deduction into a savings account ON PAYDAY, HR can do this or you can set it up through most banks.    Don’t even act like you have it.  Do your budget, now is a great time to update that budget, and figure out how much you can afford to save with your new-found exemption status, and pay yourself first.  If you are person that thinks if you have it you will spend it, have this automatically put into a credit union savings account two counties away from you and don’t request a debit card for the account.  If getting at your savings means crossing two counties during business hours, I promise you will think twice before you make the trip.

But this is not the only thing you should be discussing at your tax appointment.  Here is the list of some of the questions you should discuss with the accountant to save you money at tax time:

1.  Do I qualify for an Health Savings Account?  How much can I put in?  What are the rules?  Would this be better for my health expenses than itemizing my medicals?  (Sarah learned this one the hard way….)

2.  Do I qualify to deduct money I have put into a traditional IRA or should I be saving in a Roth IRA?  (And the hard way on this one too…SIGH….)

3.  I am married now.  Does it make sense for me to file separately or jointly?  Is one better than the other?  What are the rules?

4.  If I take money from my 401k will I be penalized?  How much?  What is the difference between a withdrawal and a loan?

5.  How will Obamacare affect my tax bill?  (Make sure to have details of your current health plan at the ready for this one.)

6.  I am paying a real estate tax lien in my bankruptcy case, will that affect my tax return – (SHORT ANSWER- YES!  Long answer is here.)

This is the short list.  This list could go on and on and on.  Things like whether to let an ex-spouse claim a child or whose name should go on the mortgage interest statement can all make big changes in your tax return and how much tax you owe every year.

Remember, this is the time of year to really evaluate your financial house and discuss it with a professional.  If that professional says your financial house is falling apart maybe it is time to come see us.

If you would like to discuss how bankruptcy may assist you in getting your financial house back on track give us a call at 732-302-9600 or fill out our online consultation form and we will be happy to help you!

Many chapter 13 Debtors are catching up on mortgage arrears and property taxes in their bankruptcy cases.  Their Trustee payment each month is being distributed by the Trustee to, among others,  the mortgage company and the taxing authorities.  But that is all the Trustee is doing, he is distributing YOUR MONEY.  YOU are still making the payments!

If you are repaying business expenses through your Chapter 13 Case whether you are still operating your business or if you operated a business that failed before you filed your case, you may be paying sales taxes, vendors and landlords through your bankruptcy case.

In New Jersey, and probably everywhere else, the Trustees are on line and the information about who has been paid in your case last year and how much they have been paid is available.  Your accountant needs that information to properly prepare your tax return and give you the best service.  Make your accountant aware of these payments.

Keep the printout you get from the Trustee’s website showing what was paid in your case last year.  It is likely the mortgage lenders the Trustee is paying are not issuing 1098 forms that include the mortgage interest debtors are paying when it is the Trustee who is sending them the checks.   The IRS will not have gotten a matching report from the mortgage lender who received the money and has not reported it to the IRS (or to you).

I am a bankruptcy attorney and I am not a tax professional.  Take this information to your accountant before you file your tax returns.  Let your accountant analyze the information and prepare your taxes with ALL the information available.  If you have been in your bankruptcy case for several years, you may want to go back and look at prior years for amounts paid by the Trustee to mortgage lenders, taxing authorities or in connection with a business.  Your accountant may decide after seeing the payments made by the Trustee in previous years, that it is worth filing amended tax returns for those years.  You can generally amend prior tax returns for up to 3 years.

Interested in how a bankruptcy can help you with past due mortgage payments and taxes?  Give our office a call at 732-302-9600 or fill out our online consultation and we will call you!

Recently I started getting the question….the same question I get at least 100 times at this time of year, every single year…

“Sarah, I am getting a tax refund.  What is going to happen to it?”

So this year, I am being proactive.  I am putting this information out for all everyone to see in advance because the answer to this question isn’t as easy as it may seem. It is a complicated by how we as taxpayers view our tax refund, how much you are getting, and which chapter of bankruptcy you are filing.

The short answer to this question is that we can probably protect your tax refund, or have already, the long answer is the most annoying of all lawyer answers, “It Depends.”

For more information about how a tax refund may be affected in your bankruptcy case, give our office a call at 732-302-9600 or fill out our online consultation form and we will call you.

It is that time of year again!  The time of year when we all, even us bankruptcy attorneys, hunker down with our W-2s and do our tax returns.

For some out there this may be an unpleasant experience.  Maybe you will owe the IRS money this year or maybe you owe the IRS from prior tax years?

For a very long time a bankruptcy case could go a long way to helping debtors who were burdened by past due tax debt.  While those abilities have been restricted there is still hope for taxpayers in a bankruptcy case.

Check out bankruptcy attorney Bruce C. Truesdale’s new article on the five basic rules for discharging taxes in a bankruptcy case.


Have questions about how we can help you get out of tax debt with a bankruptcy case?  Give us a call at 732-302-9600 or fill our our contact us form and we will call you!

“Which of my debts will disappear in my bankruptcy?”

This is a question that we are asked all the time in a first consultation.   It is important for clients to understand what debt they will still owe and what debts they won’t owe following a bankruptcy case.

The problem is that all too often there isn’t an easy or immediate answer to that question and, even worse, there is a lot of bad information circulating out there about what you can and cannot do in a bankruptcy case. posted this very basic article about what debts can be discharged in a bankruptcy case.  It is very simplified but it will give you a basic understanding of where you will be after your bankruptcy case.

However, if you owe tax debt it is critical that you speak to an experienced bankruptcy attorney and disclose immediately that you owe tax debt so that the attorney can go over your bankruptcy options with regard to that debt.

Have more questions?  Give our office a call at 732-302-9600 and we will be happy to answer any questions that you have regarding your bankruptcy options or fill out our online consultation form and we will call you!

The Mortgage Forgiveness Debt Relief Act of 2007 is set to expire December 31, 2012.  As a result, people who lose their homes to foreclosure will be required to pay taxes on any debt that the bank or mortgage company does not recover after the sale of their foreclosed home.  The same applies to homeowners whose loan principle was reduced by a mortgage modification.  The Internal Revenue Service considers forgiven debt to be taxable income.

The 2007 Mortgage Forgiveness Act was a safe harbor that excepted forgiven debt on a principle residence from being considered taxable income, but that law expires December 31, 2012.   There are other exceptions to the rule that forgiven debt is taxable income.  Please see my article,  Tax Implications of Forgiven Debt and How Bankruptcy Can Help.

It seems ridiculous to penalize a homeowner who could not make her mortgage payments with a substantial tax debt.  Where a homeowner has made every mortgage payment owed, but the housing market reduced the value of the home and put the homeowner “under water,” the homeowner forced to sell “short” would effectively be taxed on money already lost!

Others see the exception offered by the Act as a reward for bad behavior, allowing homeowners off easy when they bit off more than they could chew.

A bill to extend the Act is in Senate but as of now has not been passed.  There is wide ranging opinions on if and when an extension may occur.


Interested in more information on how a bankruptcy can help with your foreclosure problem?  Give us a call at 732-302-9600 or fill out our online consultation form and we will call you.

New Jersey Bankruptcy Attorneys Bruce C. Truesdale & Sarah J. Crouch will be doing a lecture with Steven J. Abelson on bankruptcy basics and the effect a bankruptcy case has on taxes. If you are interested in attending this lecture please contact us directly at 732-302-9600.

In the meantime you can read about the tax implications of forgiven debt right here on our website.

Have questions about your tax debt and how a bankruptcy can help? Give a us a call at 732-302-9600 or use our Contact Us Form and we will contact you at your convenience.

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                I am not a tax attorney nor am I an accountant and I do not hold myself out as either, but the issue of the consequences of forgiven debt is often a topic raised by my bankruptcy clients.

Debts discharged in a bankruptcy case do not result in tax consequences.  However, if you avoid filing bankruptcy because you were able to successfully negotiate a settlement with a creditor to pay a lesser amount or you lost a home to foreclosure, personal property to repossession or you defaulted on credit card debt, you may have been “forgiven” a debt.

Forgiven debt is considered to be income by the Internal Revenue Service (IRS).  The result may be you owe the IRS more taxes because of the forgiven debt.  The reason this happens is because the IRS is counting the forgiven debt as income to you!

A financial institution, bank, credit union, credit card company or government agency that forgives or writes off a debt that you owe that that is more than $600.00 of the debt’s principal is required to send you and the IRS a 1099C form in January of the coming year.  A 1099C form is an income reporting form that is to be used in reporting income on your tax return and you must pay tax on that forgiven debt “income.”

Even if you get a 1099C form from a creditor you may not have to report the forgiven debt as income, there are some exceptions.  If you lost your primary residence to foreclosure and the mortgage was to buy, build or restore the home and the “forgiveness” of the debt took place between 2007 and 2012.  There is a mortgage exception that will help you.  There are limits on the exception to balances of less than 2 million dollars.  Be sure to see a qualified Certified Public Accountant (CPA) in the preparation of your taxes when faces with forgiven debt.

There are other exceptions including student loans cancelled because you worked in a particular profession for a particular employer as required when you took the loan and your diligence resulted in the cancellation (see IRS Publication 525).  Another exception exists for forgiven debt that would have been deductible on your tax return if you paid it.  Still another exception exists if the debt was forgiven as a gift to you (this would be a rather unlikely situation).

There may in fact be some additional exceptions that a good CPA may find and in any event, the additional forgiven income is only one small component of your overall tax liability when doing your taxes.  In fact taxes on forgiven debt are not owed if you were insolvent before the debt was forgiven.  Insolvency may mean different things to the IRS than it does to you, so again, use the services of a competent CPA when preparing your tax return requires that you deal with income in the form of forgiven debt.

If you are in foreclosure or contemplating the “short sale” of a property, see a bankruptcy attorney before the foreclosure or short sale are complete.  A completed foreclosure or short sale may result in a non-dischargeable tax debt for forgiven debt that the filing of a bankruptcy case may have wholly avoided!  Most bankruptcy attorneys will charge you NOTHING for the consult – do not wait.

If you receive a 1099C form from a creditor, you will need to complete IRS Form 982 if you are claiming an exemption applies in your case.  The form can be complicated and claiming the insolvency exception may be tricky.  Remember my entreaty above – uses the services of a competent CPA to prepare your taxes if you receive a 1099C form from a creditor for forgiven debt

Bruce C. Truesdale