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I had a personal credit card I only used for our incorporated

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business. I filed for personal...
I had a personal credit card I only used for our incorporated business. I filed for personal bankruptcy and our accountant said we had to claim that as income, because you can't "tuck" that income away. That caused my partner and I to pay 50% each on the pass through to our personal income. Was this correct? and why did my partner have to pay if this was a personal bankruptcy?
Submitted: 8 years ago.Category: Tax
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Answered in 13 minutes by:
11/3/2009
Tax Professional: RD, Certified Public Accountant (CPA) replied 8 years ago
RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8,784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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This would be a cancellation of debt for the incorporated business since the debt was discharged in your personal bankruptcy.

Since cancellation of debt is generally income unless you qualify for insolvency exclusion- this would be included as a pass thru income on the tax return for the partners.

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.


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Customer reply replied 8 years ago
I qualified for insolvency personally, that is why I filed for bankruptcy..
Tax Professional: RD, Certified Public Accountant (CPA) replied 8 years ago
You can claim for exclusion of this income using insolvency exclusion on your tax return.


Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

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Customer reply replied 8 years ago

I was insolvent when I filed in 2006 but the bankruptcy wasnt completed until Feb of 2007. So, when was I insolvent for this issue? Does the insolvency mean my business or just my personal situation?

Tax Professional: RD, Certified Public Accountant (CPA) replied 8 years ago
Insolvency exclusion applies when the fair market value of the assets are less than the fair market value of your liabilities. Than to the exent you are insolvent you can exclude the cancellation of debt income. It does not depend on when the bankruptcy proceedings were completed.

You should keep very good records of your calculations in case the IRS required you to "prove" the insolvency amount.

 

Here is a link to IRS publication with detailed information

http://www.irs.gov/publications/p4681/ch01.html


 

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.


 

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