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Income Tax Credit vs Tax Refund

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    Income Tax Credit vs Tax Refund

    I will be getting an American Opportunity Tax Credit - I did last year and applied it my tax liability for 2010. Is the amount of the credit considered a refund? I am disabled and do not work.

    #2
    Anything that reads "tax credit" may be "refundable" or not refundable. The American Opportunity Tax Credit is a refundable tax credit which means that even your tax liability less the credit is less than $0, you would still receive this credit. However, there are some limits on how much of it is "refundable" when your tax liability less the credit is less than $0.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog

    Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

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      #3
      The credit exceeds my tax liability as it also did last year. Can I carry the credit to my 2011 taxes? -- The American Opportunity Credit is no longer available

      Comment


        #4
        Originally posted by nohope View Post
        The credit exceeds my tax liability as it also did last year. Can I carry the credit to my 2011 taxes? -- The American Opportunity Credit is no longer available
        I don't understand. The AOC (American Opportunity Credit) makes the old Hope Credit most accessible. According to the IRS, this new AOC lasts through tax year 2012.

        As far as I know, very few tax credits can be carried forward. I think this is primarily for budget reasons and keep people from carrying the credits into future years in which Congress is looking at the budget different. (That's just my opion on the reason.) Anyhow, the American Opportunity Tax Credit can not be carried forward.

        Why would you want to carry it forward anyhow, since it's a refundable credit?
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog

        Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

        Comment


          #5
          I saw on the IRS website that the credit is only good for higher education expenses in 2009 and 2010. It's part of the American Recovery and Reinvestment Act of 2009. Maybe my question wasn't clear - what happens to the funds from that credit if I take it as a refund rather than carry it forward?

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            #6
            I don't understand what you're asking. If you take the credit and you don't have any tax due, you are refunded the difference between your tax liability and the credit. There are some rules since it's not a 100% refundable credit if you have no tax liability.

            I may be wrong, but I thought that this particular credit was extended to 2012.
            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
            Status: (Auto) Discharged and Closed! 5/10
            Visit My BKForum Blog: justbroke's Blog

            Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

            Comment


              #7
              Will I lose the refund to the bankruptcy if I get it? Is that refund/credit an asset? I owe the IRS money from prior years.

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                #8
                Yes, it would be an asset of the bankruptcy estate. The key would be whether you can exempt it.
                Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                Status: (Auto) Discharged and Closed! 5/10
                Visit My BKForum Blog: justbroke's Blog

                Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

                Comment


                  #9
                  Can the IRS take it? I really would like to leave it a credit to carryover to 2011 taxes. I'll owe a fortune this year (2011) as I'm losing most of my deductions.

                  Comment


                    #10
                    Try to find a way to exempt it. If you try to have it carried over in to next year as a credit the trustee will see that and will question it. (The trustee isn't going to care about what happens next year, he/she is only concerned about what your assets are the date you file.)

                    Also, if you know you will owe next year you can change your withholding allowances now to help with the extra taxes. Ask your attorney about doing this if you have not filed yet.
                    Filed Chapter 13 02/2006 - Confirmed 05/2006 - Discharged 09/2011
                    I'm not an attorney. My replies are merely suggestions or observations, not legal advice. As always, consult with an attorney before making any decisions.

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                      #11
                      So I should have filed my taxes before I filed BK? No withholding to change - I am disabled and unable to work.

                      Comment


                        #12
                        If you are "planning" your bankruptcy, most will say to file and receive your "anticipated" refund prior to filing. Then, spend down the refund on necessities. That is, pay your attorney, get some (postponed) medical treatment done (not cosmetic!), stock up on food (not T-bone steaks!), fill your oil/propane tank on your home, fix the roof on your home, fix your car, etc. So long as it is necessities and you can account for it -- receipts -- then you should be okay.

                        Of course, always work on your bankruptcy pre-planning with a qualified attorney. Too many people have come on this board, BKForum, upset because the Trustee wants the tax refund that they already spent.
                        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                        Status: (Auto) Discharged and Closed! 5/10
                        Visit My BKForum Blog: justbroke's Blog

                        Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

                        Comment


                          #13
                          Thanks - money has not been spent - haven't got it yet BUT bankruptcy has been filed. How can I exempt it? (Should my lawyer have discussed any of this with me?)

                          Comment


                            #14
                            Whether you can exempt it or not will depend on which exemption scheme you used and how much the anticipated refund is. If you opted for the Federal Exemptions and don't have a homestead, then you have more "wildcard" exemptions that may cover that tax return -- in relation to all the other property that you needed to exempt.

                            If this is all confusing you, then you have some serious asset issues. It is highly likely that the Trustee will ask you about your tax return and anticipated tax refund at your 341 Meeting. The Trustee is looking to make it an asset case and will see that the anticipated tax refund is not exempted.

                            I do not like to tell people exactly what to do with exemptions (especially the statutes under which they may be able to exempt something) because I do not want to have anything come back that I gave legal advice on how to exempt money. I can only point you in the right direction.
                            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                            Status: (Auto) Discharged and Closed! 5/10
                            Visit My BKForum Blog: justbroke's Blog

                            Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

                            Comment

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