When you file for business bankruptcy, you’re able to discharge many if not all of your business debts. But filing for bankruptcy can also have an impact on your taxes and your tax liability. Here’s what your Wisconsin business bankruptcy attorney wants you to understand about the tax implications of filing for bankruptcy.
Businesses Are Responsible for Paying Their Taxes
If you’re considering filing for bankruptcy, the state and federal government will still expect you to pay taxes on time. This is because you operated your business in the state and, under the law, your business is responsible for cooperating with the IRS and paying what you owe.
This can be difficult if your company is struggling to make ends meet and can’t make those required payments. But as with most tax situations, things aren’t as cut and dry as they seem. There are situations where businesses may be able to discharge their tax debt with the rest of their business debt when they file for bankruptcy.
The Exceptions to the Rule
You may be able to discharge your taxes owed if you meet certain qualifications. This includes the following:
- Your tax debt is old: To be eligible to discharge your taxes, the taxes you’re discharging must be old enough to qualify. The taxes in question must have been due at least three years before you filed for bankruptcy. If the tax debt is for more recent years, you will not be able to discharge the debt.
- You haven’t filed taxes in the last two years: For your taxes to be discharged as part of your bankruptcy, you must not have filed your tax return in the last two years. If you’ve simply missed a payment one year but have filed tax returns in recent years, you may not be eligible.
- You must satisfy the minimum time requirement: The IRS should have determined how much you owe at least 240 days prior to you filing for bankruptcy. If their determination happened sooner than that, you may not be eligible.
- You’ve filed the last four years of returns before the first creditors meeting: For your taxes to be discharged, you must file the last four years of returns before the first creditors meeting. Your bankruptcy attorney will help you figure out when that date is so you can take care of your taxes on time.
What Happens if Your Taxes Are Discharged?
If your taxes are discharged, you won’t have to worry about repaying the taxes that you owe. You’re free to move on and figure out your next steps once your bankruptcy is complete. The bankruptcy court will let you know if your taxes are discharged or if you’re still responsible for paying them in full.
What You Can Do if Your Taxes Aren’t Discharged
Though discharging or getting rid of your tax debt may be your goal, it’s not always possible. But there are things you can do to reduce what you owe. Consider speaking with the IRS about your situation. They may allow you to enroll in a repayment plan or let you negotiate a lower total payment amount through an Offer in Compromise. Your bankruptcy attorney may be able to help you figure out which option is best for your situation.
Work With an Experienced Wisconsin Business Bankruptcy Attorney
The tax implications of filing for bankruptcy can be daunting if you’re trying to figure them out on your own. Let the experienced Wisconsin business bankruptcy attorneys at Kerkman & Dunn help you better understand your situation. Contact us today to schedule a consultation.
