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I am a 100% Serviced -connected Veteran and I am filing for

the disability discharge under the...
I am a 100% Serviced -connected Veteran and I am filing for the disability discharge under the Department of Education to discharge $75K in student loans. They informed me that I will be getting a 1099C indicating this is part of my Income. I wanted to find out are there any loop hole in Maryland where I can be exempt from the horrible taxes that are coming my way? I can't afford to pay the type of taxes that will be enforced on this 1099C.
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Answered in 1 minute by:
8/27/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,243
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

NPVAdvisor :

Hi, so sorry --- First of all thank you for what you've done for the country

NPVAdvisor :

Let me take a look at the Maryland statutes ... I know on the federal side you're proverbially "hosed." BUT it IS only income and depending on your other income, may only be taxable at t pretty low rate ... and finally, you CAN apply for an installment agreement online to pay that tax bill (again you'll only owe the tax ON it - that 75 is not the tax bill) over time

NPVAdvisor :

Are you there?

Customer:

Yes.

NPVAdvisor :

OK

Customer:

I only make 35210 a year and I have four children.

NPVAdvisor :

hang with me here ... I'm pullling up the MD statute law on this

NPVAdvisor :

ahhh that helps too, hang on

NPVAdvisor :

married filing jointly?

Customer:

No head of household

NPVAdvisor :

k hang on ... first let me do a tax forecast ans see where that puts you

Customer:

I am not married.

NPVAdvisor :

right

NPVAdvisor :

an't be for H of H

NPVAdvisor :

DO you itemize or take the standard dedutcion?

Customer:

Yes I claim a lot of Itemization, like medical, dental, and whatever I qualify for.

Customer:

I don't pay much for daycare. My youngest is 7 and oldest is 15

NPVAdvisor :

OK can you ball parf it for me? I'm running a quick mode to see what your taxes look like

NPVAdvisor :

Here's what it looks like with a standard deduction (people take the standard or the itemized, whichever is higher) and without the additional income from the debt forgiveness

Customer:

650 for the year in child care, dental/ medical I have paid out around $5K this year and I pay dental

NPVAdvisor :


Tax Calculator Results
Full Size Image

My Tax-Rates.org Income Tax Estimate


Federal & Maryland State Income Tax - Tax Year 2012





















Income Tax Calculations
Maryland

Federal
Gross Income$35,000.00$35,000.00
Deductions for AGI($0.00)($0.00)











Adjusted Gross Income (AGI)$35,000.00$35,000.00


























Deductions and Personal Exemptions
Standard Deduction (Head Of Household)($2,000.00)($8,700.00)
Personal Exemptions (Five dependants)($0.00)($19,000.00)
Personal Exemptions (One filer exemption plus four dependants)($16,000.00)($0.00)











Taxable Income$17,000.00$7,300.00






















Federal Income TaxShow Calculations $730.00
Maryland Income TaxShow Calculations$755.00
Additional TaxesN/AN/A











Gross Tax$755.00$730.00





















Tax Credits & Payments
Child Tax Credit (Four qualifying children, eligible for full credit)($0.00)($4,000.00)
Earned Income Tax Credit (Eligible for partial credit)($0.00)($2,118.65)











Owed Tax$755.00$-5,388.65































Gross Income

$35,000.00
Total Tax (Pre-Credits)

$1,485.00
Total Owed Tax

$-4,633.65
After-Tax Income

$39,633.65
Effective Tax Rate

4.24%


Customer:

Is this including the 1099C?

Customer:

So they add the tax pa?rt of the 75K to the income

NPVAdvisor :

No, ... this tells us a couple of things ... (1) your taxable income is 17,000 that puts you i the 15% bracket

NPVAdvisor :

  • 10% on taxable income from $0 to $12,750, plus

  • 15% on taxable income over $12,750 to $48,600, plus

  • 25% on taxable income over $48,600 to $125,450, plus

  • 28% on taxable income over $125,450 to $203,150, plus

  • 33% on taxable income over $203,150 to $398,350, plus

  • 35% on taxable income over $398,350 to $425,000, plus

  • 39.6% on taxable income over $425,000.


 

NPVAdvisor :

so that means that the additional tax will be 75,000 * .15 = 11250

Customer:

Is that good for this situation?

NPVAdvisor :

Yes that means that with the already negative tax owed because of the child care credits, you only owe around (I shouldn't say only) 10,000

NPVAdvisor :

which, again, can be paid over time

NPVAdvisor :

given your situation you'll qualify for a payment plan easily

NPVAdvisor :

also, tht'e no withholding

NPVAdvisor :

do you have a w-2?

Customer:

So I usually get back over 10K in taxes will that offset?

Customer:

No not handy.

NPVAdvisor :

you bet

Customer:

I won't get back anything or owe anything?

NPVAdvisor :

that's the missing piece, but if you know that you get back around 10,000 that puts you at about a wash

NPVAdvisor :

right

NPVAdvisor :

+- a few dollars, but generally yes

Customer:

Ok and is that for both outcomes for state and federal (total)

NPVAdvisor :

How much do you normally get back on state?

Customer:

2 to 3K

Customer:

Federal around 8 to 9K

NPVAdvisor :

yep, it looked like you were at about 1500 owed, that puts you at a small plus, for state

Customer:

I got back over 12K all together this year

NPVAdvisor :

That's right at Break-Even

Customer:

And there are no loop holes being a disable Vet.

Customer:

Have you ever heard of this program?

NPVAdvisor :

Sorry, nothing at the Federal level I know, and I could not find anything on the MD (state level) .... (hopefully having all the facts will let you "see aruond some corners"

Customer:

The VA income non-taxed

NPVAdvisor :

All of that helps ... but again that's part of the refund you get... and it's taking that to offset

Customer:

Gotcha!

NPVAdvisor :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

NPVAdvisor :

oh I see your typing ... I'll wait

Customer:

Ok, I usually do it on turbo tax, but I have to go to a tax professional. Can you recommend any?

NPVAdvisor :

I'm sorry, the site won't let us make recommendations ... but if you use the interview method Turbotax does a good job of asking you for all the possibilities (getting the child care credits, etc)

Customer:

Gotcha!! Thank you for your help.

NPVAdvisor :

I would look for someone that specializes in Military .... Google "tax preparation for veterans in Maryland"

NPVAdvisor :

... welcome

Customer:

Gotcha

Customer:

Have a good evening.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,243
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now

Thanks Danielle,

If I can help further let me know

Lane

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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,243
13,243 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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