Question about filing around tax refund time?

[aces67]

You can use your refund to pay your lawyer.

For us the refund didn't change our DMI b/c we used gross wages on our forms. Using gross wages figures in the refund already.

[redyhws]

I always thought that the way to deal with a tax refund with the means test is not to use it to change your CMI (since your CMI is based on gross income anyway) but instead use it to adjust how much is deducted in the means test under the line item deduction devoted to taxes. So, if your monthly paycheck is deducting $600 month in taxes, but you get a refund, you have to reduce the $600 month deduction in the means test to something that reflects the refund.

And, it would be best to obtain and spend the refund in the same month you file because the means test only deals with income for the 6 months prior to the month you file. Of course, it looks sort of "shoddy" to do that (and could cause problems) because it clearly shows what your intent was, so it may be best to deal with it as an adjustment to tax deductions in the means test, as I explained above.

[housepoor]

However, for the purposes of the means test and determining whether or not you are above/below median, you use GROSS wages ... and so to include a tax refund (assuming the only income you had were your wages) would be ridiculous, to me. Like I said, I have NEVER included it, and NEVER got an objection.

We are in PA and last year we got 12,000 back at tax time ( I know dumb and we have since increased our dependents). Anyway when our lawyer did our paperwork our taxes were added back in as income $1,000 per month. Leaving the office my husband and I were saying the same thing. They took our gross income (no over withholding deductions or anything) then added our taxes to that. It makes NO sense at all. By those numbers we recieved the 12,000 twice. The amount of money they claimed we had for paying bills was nothing close to the truth. If they are adding back in the taxes they shouldn't use gross income. You don't get your full gross income to spend and then a tax refund too. It really is not logical. When we asked they said that is just the way it is. We had to beef up our expenses to make up for the money that we really didn't have. Maybe different states interpret it differently but it seems your state is correct in logic.

[JEM]

JEM I think your worrying way too much. (Aren't we all) What scenario do you have for those who don't pay any income taxes but get thousands back due to credits ? You must also remember alot of people receive a refund due to having alot of deductions such as Mortgage Interest, Tuition Expenses and so on.

I generally find it very hard to believe that Fed/State Income Tax refunds would be included as income. Most BK lawyers will at this time of the year ask how much you expect to get back. When you tell them a large amount they usually will come back and tell you to wait until you have filed, received and then spent down those refunds. For them to advise that would surely indicate it is not included income otherwise you would hear everyone and their brother crying that the TT and UST went back in time to seize refunds before filing. It appears they are only concerned with the tax refunds of returns filed after your bk petition filing date. Kind of like next year the TT/UST will want 4 months wrth of my future 2010 return.


MEatstick

Ha! I AM a worrier!! Even before all of this.

[lalap123]

I wouldn't mind waiting until the income drops off if it would make a difference. Unfortunately (or fortunately) I accepted a part-time/intermittent job in October that is bringing me a steady $950 a month, so if I waited a couple of months for the other to fall off it will just be replaced with my current income.

Thanks for taking the time to answer...can I ask you something else? On what form/where would I account for the money as a special, on-time circumstance? Will this essentially bring me back under the median or is it something I will have to show on the means test? Do trustees regularly take this type of situation into account?

[Meatstick]

JEM I think your worrying way too much. (Aren't we all) What scenario do you have for those who don't pay any income taxes but get thousands back due to credits ? You must also remember alot of people receive a refund due to having alot of deductions such as Mortgage Interest, Tuition Expenses and so on.

I generally find it very hard to believe that Fed/State Income Tax refunds would be included as income. Most BK lawyers will at this time of the year ask how much you expect to get back. When you tell them a large amount they usually will come back and tell you to wait until you have filed, received and then spent down those refunds. For them to advise that would surely indicate it is not included income otherwise you would hear everyone and their brother crying that the TT and UST went back in time to seize refunds before filing. It appears they are only concerned with the tax refunds of returns filed after your bk petition filing date. Kind of like next year the TT/UST will want 4 months wrth of my future 2010 return.


MEatstick

[BnkrptcyLwyr]

You don't practice in GA by any chance do you? I'm guessing that there are many differences in interpretation among not only states but also districts. I'm just fortunate to be in one of those *lucky* districts where they have told me to include everything.

How do you handle "income" from items sold on Ebay, Craigslist, etc.? I've read many times that if all items were household/yard sale type items you are essentially not making a profit on after fees, etc. that it isn't technically income. I talked to one attorney who blew it off, but another who said it has to be included. The one I ended up retaining is the one who said not to worry about it, b/c if it goes on there I'm over the median and have to do the means test. If the trustee objects to not including it the worst that can happen is that he makes me do the means test, right? I'm pretty sure I will pass it, but it still makes me nervous. Could he dismiss my case?

How aboout waiting the time until the income drops off (if it is income or not). That is a solution that ALWAYS works.

Furthermore, one time income such as that, I would deduct as a special circumstance.

[BnkrptcyLwyr]

Here is how *I* thought they would do it....(I'll use the same numbers you did)

Gross income $50K

Taxes $5K

Net income $45K

Tax Refund $5000/12=$466 in "over withholding" a month.....added back in for the purpose of figuring disposable income on Schedule J.

However, I know for US, we get back less than we pay in. This year, I think we'll have paid in @ $4000 in taxes, and probably get a $2400-$2500 refund. Obviously, what the government kept wouldn't be added back in, just the amount of our refund.


Am I wayyyyyy off??

However, for the purposes of the means test and determining whether or not you are above/below median, you use GROSS wages ... and so to include a tax refund (assuming the only income you had were your wages) would be ridiculous, to me. Like I said, I have NEVER included it, and NEVER got an objection.

[Mi Bankruptcy]

I anticipated this was going to be an issue last year and plenty of room left in my exemptions. I had my attorney exempt "anticipated" tax return for me and my wife.

Husb. $3000.00k
Wife: $3000.00k

You would immediately be told by the trustee if this was acceptable or not. I had no problem and received all my return in 2009 to the tune of 6k.

[JEM]

I have never added in tax return income as income on the means test. Never had a problem.

When you think about it, an income tax refund is not new income, it is a return of income already received. Furthermore, if you were to file today, you would have to list your gross income from wages, which would already include that portion of the taxes that you are receiving back (it was taken out of your pay, and is not excluded when listing your gross income on the means test). If you were to list the tax refund too, it's like you're double counting the income.

Think about it this way ... and I'm using sample numbers for the full calendar year.

My gross wages: 50,000.00

My tax refund: 5,000.00

Now, did I make 55k for the year? Nope. I made 50k.

Under your scenario, you made 55k ... but the extra 5k really came out of the 50k and is not added to the total you grossed. It's a return of money paid out of the 50k.

Here is how *I* thought they would do it....(I'll use the same numbers you did)

Gross income $50K

Taxes $5K

Net income $45K

Tax Refund $5000/12=$466 in "over withholding" a month.....added back in for the purpose of figuring disposable income on Schedule J.

However, I know for US, we get back less than we pay in. This year, I think we'll have paid in @ $4000 in taxes, and probably get a $2400-$2500 refund. Obviously, what the government kept wouldn't be added back in, just the amount of our refund.


Am I wayyyyyy off??

[lalap123]

You don't practice in GA by any chance do you? I'm guessing that there are many differences in interpretation among not only states but also districts. I'm just fortunate to be in one of those *lucky* districts where they have told me to include everything.

How do you handle "income" from items sold on Ebay, Craigslist, etc.? I've read many times that if all items were household/yard sale type items you are essentially not making a profit on after fees, etc. that it isn't technically income. I talked to one attorney who blew it off, but another who said it has to be included. The one I ended up retaining is the one who said not to worry about it, b/c if it goes on there I'm over the median and have to do the means test. If the trustee objects to not including it the worst that can happen is that he makes me do the means test, right? I'm pretty sure I will pass it, but it still makes me nervous. Could he dismiss my case?

[BnkrptcyLwyr]

Just a quick note on what my attorney said (you may already know this)...the refund WILL be counted as income so be prepared to add it and make sure you still fall under the median.

I have never added in tax return income as income on the means test. Never had a problem.

When you think about it, an income tax refund is not new income, it is a return of income already received. Furthermore, if you were to file today, you would have to list your gross income from wages, which would already include that portion of the taxes that you are receiving back (it was taken out of your pay, and is not excluded when listing your gross income on the means test). If you were to list the tax refund too, it's like you're double counting the income.

Think about it this way ... and I'm using sample numbers for the full calendar year.

My gross wages: 50,000.00

My tax refund: 5,000.00

Now, did I make 55k for the year? Nope. I made 50k.

Under your scenario, you made 55k ... but the extra 5k really came out of the 50k and is not added to the total you grossed. It's a return of money paid out of the 50k.

[JEM]

I could see where that is the case and an adjustment could be made to "taxes" under the deductions section of the means test. This wouldn't change 'income" however.

Yes, from my understanding....the refund is added back in to monthly income. For instance, if you received a $1200 refund, it would be divided by 12 ( which equals $100/mo) and added to your monthly income.

[Depressed]

I'm planning to use mine to pay legal fees.

[wantout]

The TT assigned to my case sent me a letter with specific instructions regarding my 2009 taxes and any refund I may get.

I have to file within 40 days of my 341, not a problem, I will have filed before my 341.

I cannot efile. I wil have to paper file this year both fed and state.

He will let me know if I can keep any or all of the refund, if I get a refund and I get the check before he has sent me his decision, I have to forward the check to him without endorsing the check.

Failure to follow his instructions on this matter will result in a dismisal of my case.

My attorney told me if the refund is over $1000, I will lose it.

We shall see.