As we approach tax season, many people are surprised that a tax specialist may determine there are hidden deductions in their Chapter 13 plan payment. It is always best to consult your tax preparer to see what deductions you may be eligible for if you are in repayment for mortgage arrears, taxes, or business debt.
We’ll discuss several scenarios that a tax preparer may determine will qualify for deductions. If you have any questions about this or any other bankruptcy-related information, or if you simply want a free legal consultation, call us at 800.400.9000.
Know what is being paid through your plan payments.
When you file a Chapter 13 bankruptcy, a trustee is appointed to pay the creditors included in your Chapter 13 filing on your behalf. Every month, you will make a payment to the trustee, and they will, in turn, divide that money amongst your creditors. Make sure you are aware of which debts are being paid through your bankruptcy. Your bankruptcy attorney can help you understand what is being paid. If you are paying things like mortgage arrears, business debts or taxes, you may want to review this information with a tax professional as they may determine you are eligible to claim a portion of these payments as a tax deduction.
Mortgage interest may be deductible from taxes.
When a mortgage lender is being paid through your Chapter 13 plan, either via conduit or to pay back mortgage arrears, part of that repayment will include interest on your mortgage loan. Make sure to review what portion of your payment has been paid to interest with a tax professional to make sure you are getting the benefit of these interest payments.
You may be able to claim a tax deduction for taxes from prior years.
Like mortgage interest, a tax specialist may determine that you can count property taxes or state income taxes that are being paid through your plan as a deduction. Remember to speak with your bankruptcy attorney so they can determine how much of your plan payment has gone towards these taxes so you can review the information with your tax preparer.
You may be able to claim a tax deduction for business expenses.
Business expenses, such as sales tax, vendor debt, and business leases, may also be deductible if paid through your Chapter 13 plan. A tax professional will need to review how much was paid through your bankruptcy, so be sure to discuss this with them.
What you should know about taking deductions
Your Chapter 13 trustee will file periodic reports showing what creditors have been paid in your bankruptcy case, so it is important that this information is reviewed to determine how much each creditor has been paid. Once you have a breakdown, if you are paying one of the above creditors, it will be best to consult a tax professional to get the most out of your tax return. Remember, just as it is best to consult with a bankruptcy attorney when considering the ins and outs of bankruptcy, it is best to speak to a tax expert to get the best advice regarding deductions or your tax returns.
Do you have any additional bankruptcy-related worries? Are you ready to find out if it’s a good option for you? Then contact Winterbotham Parham Teeple, a PC to arrange a free bankruptcy consultation.