Jeffrey M. Rosenblum, P.C.
A Fresh Start

March 2015 Archives

What not to do before filing for bankruptcy

People who file for bankruptcy in New York often worry about what assets might be seized after they file. Although some people may be tempted to transfer valuable assets to family members and friends in an effort to protect them, this activity could be viewed as fraud. A person filing for bankruptcy may actually have a better chance of protecting assets that are in their own name.

Student loans and bankruptcy in New York

According to a study done by an attorney, 40 percent of holders of student loans were able to have those obligations discharged in bankruptcy court if they attempted to do so. Furthermore, although there are thousands of good candidates for full or partial discharges, the vast majority do not avail themselves of this opportunity. This is partially because of the widely-held perception that student loan obligations cannot be discharged in bankruptcy.

IRS REMINDS TAXPAYERS THEY STILL HAVE TO TIME TO CONTRIBUTE TO AN IRA

"Taxpayers that they still have time to contribute to an IRA for 2014 and, in many cases, qualify for a deduction or even a tax credit. Contributions to traditional IRAs are often deductible, but distributions, usually after age 59½, are generally taxable. Though contributions to Roth IRAs are not deductible, qualified distributions, usually after age 59½, are tax-free. Those with traditional IRAs must begin receiving distributions by April 1 of the year following the year they turn 70½, but there is no similar requirement for Roth IRAs. Most taxpayers with qualifying income are either eligible to set up a traditional or Roth IRA or add money to an existing account. To count for 2014, contributions must be made by April 15, 2015. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the saver's credit when they fill out their 2014 returns. Eligible taxpayers can contribute up to $5,500 to an IRA. For someone who was at least age 50 at the end of 2014, the limit is increased to $6,500. There's no age limit for those contributing to a Roth IRA, but anyone who was at least age 70½ at the end of 2014 is barred from making contributions to a traditional IRA for 2014 and subsequent years. The deduction for contributions to a traditional IRA is generally phased out for taxpayers covered by a workplace retirement plan whose incomes are above certain levels. For someone covered by a workplace plan during any part of 2014, the deduction is phased out if the taxpayer's modified adjusted gross income (MAGI) for that year is between $60,000 and $70,000 for singles and heads of household and between $0 and $10,000 for married persons filing separately. For married couples filing a joint return where the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range for the deduction is $96,000 to $116,000. Where the IRA contributor is not covered by a workplace retirement plan but is married to someone who is covered, the MAGI phase-out range is $181,000 to $191,000. Even though contributions to Roth IRAs are not deductible, the maximum permitted amount of these contributions is phased out for taxpayers whose incomes are above certain levels. The MAGI phase-out range is $181,000 to $191,000 for married couples filing a joint return, $114,000 to $129,000 for singles and heads of household and $0 to $10,000 for married persons filing separately. Also known as the retirement savings contributions credit, the saver's credit is often available to IRA contributors whose adjusted gross income falls below certain levels. For 2014, the income limit is $30,000 for singles and married persons filing separate returns, $45,000 for heads of household and $60,000 for married couples filing jointly.Eligible taxpayers get the credit even if they qualify for other retirement-related tax benefits. Like other tax credits, the saver's credit can increase a taxpayer's refund or reduce the tax owed. The amount of the credit is based on a number of factors, including the amount contributed to either a Roth or traditional IRA and other qualifying retirement programs." 

SIMPLIED METHOD FOR HOME OFFICE DEDUCTION

"The Internal Revenue Service has reminded people with home-based businesses filling out their 2014 federal income tax returns that they can choose a simplified method for claiming the deduction for business use of a home. Introduced in tax year 2013, the optional deduction is designed to reduce the paperwork and record keeping burden for small businesses. The optional deduction is capped at $1,500 per year, based on $5 a square foot for up to 300 square feet.
Normally, home-based businesses are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Instead, taxpayers choosing the simplified method need only complete a short worksheet in the tax instructions and enter the result on their tax return. Self-employed individuals claim the home office deduction on Schedule C, Line 30; farmers claim it on Schedule F, Line 32 and eligible employees claim it on Schedule A, Line 21.
Though homeowners using the simplified method cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.
Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible. Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the simplified method. 

New York bankruptcy may be better than insolvency

The Federal Reserve Bank of New York has filed a report that indicates that bankruptcy may not be the last resort many people make it out to be. Analyzing changes in bankruptcy law from 2005 onward, the Federal Reserve has concluded that people who file bankruptcy may actually be in a stronger financial situation than those who are forced by circumstances, finances or fear of the stigma associated with bankruptcy to face insolvency.

Using bankruptcy to handle tax debts

While filing for bankruptcy may result in a discharge of many different types of debt, tax obligations are only released under certain circumstances. For example, being freed from tax debts is typically more likely when the individual is filing for Chapter 7 bankruptcy. Other factors that might affect the discharge might be the age and type of the tax.