Being self-employed and working from home, I asked my CPA several months ago (prior to filing Chapter 7) what would be the effect concerning the IRS if I were to file. My two main questions referred to business realted equipment purchases and any business interest deducted in the past relating to those equipment purchases. Without hesitation he said that a "discharge" meant that you are forgiven of all past debts effective on the day of discharge and that as far as the IRS was concerned it would not affect any past deductions for depreciated assets or business loan interest paid relating to those assets. Did my CPA give me correct advice?
Example: You buy a computer for your business at say $3000 which you finance starting in 2003 on a credit card. The interest on that equipment is deducted each year at the actual amount paid and the equipment is depreciated say over 3 years. You file Chapter 7 in 2004 a year later and are discharged that year. Obviously AFTER the discharge you no longer can deduct any more interest because you no longer owe or pay any interest - the debt was discharged. The computer which is an asset that was charged and partially paid off and partially depreciated is below the exemption limit.
As I understand in this example, you would retain the computer. One question is would you continue to depreciate the asset in 2005 even though you never finished paying for it or does the IRS treat it as though it is just no longer an asset?
My other question is if you have been purchasing business equipment and software every year for 20 years leading up to filing Chapter 7, how could you be accused of tax fraud just because you filed Chapter 7 and had taken deductions in recent years and were still depreciating some equipment? Doesn't everyone have legitimate IRS tax deductions for which they have received the benefits of those deductions every year leading up to filing Chapter 7? Is everyone who files Chapter 7 expected to pay back the IRS for deductions received for the years leading up to filing.
Example: You buy a computer for your business at say $3000 which you finance starting in 2003 on a credit card. The interest on that equipment is deducted each year at the actual amount paid and the equipment is depreciated say over 3 years. You file Chapter 7 in 2004 a year later and are discharged that year. Obviously AFTER the discharge you no longer can deduct any more interest because you no longer owe or pay any interest - the debt was discharged. The computer which is an asset that was charged and partially paid off and partially depreciated is below the exemption limit.
As I understand in this example, you would retain the computer. One question is would you continue to depreciate the asset in 2005 even though you never finished paying for it or does the IRS treat it as though it is just no longer an asset?
My other question is if you have been purchasing business equipment and software every year for 20 years leading up to filing Chapter 7, how could you be accused of tax fraud just because you filed Chapter 7 and had taken deductions in recent years and were still depreciating some equipment? Doesn't everyone have legitimate IRS tax deductions for which they have received the benefits of those deductions every year leading up to filing Chapter 7? Is everyone who files Chapter 7 expected to pay back the IRS for deductions received for the years leading up to filing.
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