It's the New Year and with it comes the dreaded anticipation of tax time. Many people put off filing their taxes, but there may be a reason why you shouldn't. If you are thinking about getting a fresh start through Chapter 7 or Chapter 13 bankruptcy it's a requirement for discharge.
You are required to file bankruptcy by law. What many do not know is that the IRS can actually assess civil penalties for failing to file your taxes as well as failing to pay the taxes that were due.
What is worse, waiting will not make them go away. The IRS' three-year statute of limitations on assessing taxes and penalties does not begin to run until after you have filed your taxes. Similarly, the 10-year statute of limitations on the IRS collecting tax liabilities will not run until you file your taxes.
People struggling to keep their heads above water frequently claim a higher number of exemptions on their paystubs in order to have more money to pay bills that they owe. Inevitably, this puts most of those people in a bad position when it comes to tax time and they end up owing money.
Bankruptcy and Taxes
People looking to bankruptcy to help them with their tax debt will be happy to know there are options; however they will probably need the help of a bankruptcy attorney to understand their options. There are specific rules about discharging taxes in bankruptcy.
In general, back taxes are not dischargeable unless the following has happened:
- Two years has passed since the delinquent return has been filed, AND
- Three years has passed since those taxes were due, including extensions and audits
If you are dealing with other debts, waiting may not be an option. Chapter 13 bankruptcy offers people the opportunity to pay back delinquent tax debts through a repayment plan.
Source: www.forbes.com, "File Those Tax Returns," Stephen J. Dunn, 4 January 2012