Estimated Tax Penalty

Usually taxes are not dischargeable for the New York individual in a bankruptcy, and must be paid even when a person files bankruptcy.  It does not matter if a person files Chapter 7 or Chapter 13. There is exception to this general rule when the tax return was due over three years ago, or filed at least two years ago, and the Internal Revenue Service (IRS) does not issue an income tax assessment within 240 days before a NY individual files bankruptcy.

Since filing for bankruptcy does not automatically let a debtor to get off the hook of taxes, the NY debtor can decide to pay any taxes owed at the time of bankruptcy filing to zero or decrease a bank account balance.  This would not be wrong even though paying off other types of creditors when a person is about to file bankruptcy may be considered fraud, and cause for preference action by a trustee.  This is because the taxes are not dischargeable and the person would have to pay the taxes even after a bankruptcy case closes.

Tax debts are linked to a particular tax return and tax year. For someone who files bankruptcy, the person has to give copies of recent tax returns to the trustee, and while a case is pending, the person has to give copies of tax returns for every year the case has not closed.

For the independent contractor or self-employed, tax season is not over even though it is now June.  Many people are just getting their tax returns reviewed by the IRS to make sure they paid their 2010 taxes on time.  Debts may incur from tax penalties even when a person gets a refund or has paid more than what was due.

Every year, after tax season in April, the IRS looks over returns to make sure the taxes were paid on time each quarter or by the due dates.  For the independent contractor or self-employed, the person has to make quarterly payments equal to 100% of the prior year or 90% of the current year, whichever is less.  If a person does not make enough payments, the person gets a penalty calculated by the number of days the amounts go unpaid.  The IRS sends the person a computer generated notice. There is a toll free number to call, but many times a person has to wait an hour just to get someone on the phone.  Then usually that person may not be trained to discuss estimated taxes and puts the person on hold to transfer to someone who knows estimated taxes.

Any withholdings such as a job where someone is a W-2 employee, are subtracted from the estimated taxes payable for the year.  Divide the result by four to get the figure payable each quarter.  Look over IRS Form 2210 to make penalty calculations for not paying taxes on time.

To get tax debt discharged in bankruptcy, the New York debtor needs to establish the debt is too old:

•             Due date for filing tax return at least three years ago.

•             Tax return filed at least two years ago.

•             Tax assessment at least 240 days old.

•             Tax return not fraudulent.

•             Taxpayer not evading taxes.

To learn more about tax debts and bankruptcy, contact an experienced New York bankruptcy lawyer.