Are You Committing Financial Child Abuse?

Although it may be something you’ve never considered, there have been many reports of what is now being called “financial child abuse.” One of the easiest ways to commit financial child abuse is to use your child’s Social Security number instead of your own.

Why would anyone use their child’s Social Security number?

Typically, the perpetrator has found himself with a significant amount of debt that may include wage garnishment. What this means is that any time the adult in question attempts to get a job, his debts follow him and his creditors will be able to take a portion of his paycheck.

Because of this, the adult decides to use his child’s Social Security number when applying for a new job. Oftentimes, the father and the child in question have the same name, making this kind of activity slightly more difficult to detect by law enforcement.

Is it a crime to use your child’s Social Security number?

Not only is it illegal, but to do so would be committing a number of serious crimes including:

  • Identity theft
  • Fraud
  • Tax fraud
  • Social Security fraud
  • Theft

These crimes will almost certainly prevent the adult in question from ever discharging any of his debts in a bankruptcy in the future, and in addition, he may face prison time and thousands of dollars in fines.

Why is it a crime? Who is it really hurting?

The reason it is a crime to use a child’s Social Security number to obtain employment or a loan, etc. is because regardless of whose Social Security number is being “borrowed,” it is illegal to do so. End of story. A Social Security number is not something that can be borrowed, shared, or changed.

It can affect the child in question by tacking on Social Security wages to his SSN that he may have to answer for later in life if the activity is not stopped and reversed. This can cause the child serious legal problems involving Social Security fraud, even though he had no knowledge of the crime being carried out.

What is a better solution to my debt-related problems?

It is always a good idea to avoid committing a crime in order to get out of paying your debts. The reasons? You’re going to end up getting in serious trouble, you may go to jail, you will owe more money in the end, you will cause conflict within your family, and most importantly: There is a better solution!

You can erase the debts that you have. You do not have to borrow someone else’s Social Security number to get around your creditors. It is understandable and admirable that you want to get a job to support your family. Just don’t resort to committing a crime that you will regret later in order to do so.

Filing for NJ bankruptcy will wipe out most or all of the debts that you have racked up (with some exclusions) – allowing you to have a relatively clean credit report and no debts that will be taken from your wages.

Will a bankruptcy appear on my credit report?

It is impossible to avoid a bankruptcy showing up on your credit history, however, taking the responsibility for your debts and doing the right thing is viewed much more favorably by employers and lenders. You will have a much easier time getting a job with a bankruptcy on your record than if you had been convicted of fraud and identity theft.

The bankruptcy will disappear off of your credit report within seven to ten years depending on which chapter you file. Committing a crime like identity theft or Social Security fraud will remain on your criminal history record for the rest of your life. Which sounds more desirable to you? Do the right thing – file for bankruptcy and get rid of your debts so that you can move forward with getting that job and supporting your family the right way.

Can I Lose My Home if I Stop Paying Property Taxes?

4972357447_b5a59a0482_zOne of the many responsibilities that come along with home ownership is paying property taxes. Many mortgage lenders will wrap the amount of your property taxes right into the amount of your mortgage payment every month, so you don’t have to think about it and don’t risk missing a tax payment.

Some people prefer to pay their property taxes separate from their mortgage payment. Doing so requires a great deal of self-control and money mastery. Making your own quarterly property tax payment means that you have to be able to think ahead and set aside enough money to cover your tax bill. Most people who decide to go this route have a set dollar amount  from every paycheck automatically channeled into a separate bank account that is set up specifically for property taxes.

This is actually a solid financial idea for those people who have good control over their money, especially if the account you keep your tax money in generates interest. In a sense, your property taxes can make money for you.

On the other hand, being able to set aside that much of your paycheck can be difficult for some people to do – leading to missed property tax payments. Falling behind on one payment can start a dangerous trend and thought process.

“If I missed one payment and nothing ‘happened,’ I’m sure it’s ok if I miss just one more payment while I use that money to catch up on other bills.”

That line of thinking is dangerous because it is faulty. As soon as you fail to make one of your property tax payments, your mortgage lender will typically make the payment for you. While this may sound like a good thing, you must know that your lender isn’t doing you any favors. They’re simply protecting themselves and their investment.

Failure to pay property taxes gives the government the right to place a lien on your home. The concept of a lien can be confusing, but it simply means that there’s a virtual sign on your home letting everyone know that you owe someone money. Additionally, repeated failure to pay your property taxes can lead to the sale of your home or the lien by the government so they can recover the money you owe. If you attempt to sell your home before the government can sell it, your tax liens will appear on a title search, scaring away any potential buyers.

Property taxes are not something that you can simply ignore. They finance important government services like schools! Failure to pay your property taxes means a blatant disregard for your duty as a homeowner in your community.

If your mortgager puts up the tax money you owe so the home isn’t sold out from under them (tax liens take precedence over mortgages), you will then obviously owe even more money to your lender. They will likely bill you for the money they paid toward your property taxes, expecting you to keep current on all monies owed. Failure to stay current with your mortgage company will lead to – you guessed it – foreclosure.

Can you miss a property tax payment or two? You can, but it’s a really bad idea.

Can doing so lead to the loss of your home? Absolutely. If you’re thinking of skipping a property tax payment in order to funnel that money elsewhere, you need our help. We’ll sit down with you and figure out a better way to reorganize your debts so that you can stay in your home, pay all of your monthly bills, and maintain a decent credit score. If you’ve already missed some of your tax payments, we’ll help you negotiate with your lender so you can get back on track with a payment plan that brings your mortgage and property taxes current.

 

Image credit: Marycat879

If I Move Out of the Country, Will My Debts Follow Me?

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Carrying a huge amount of debt can make drastic actions seem suddenly appealing. Unpaid debts (especially those with high interest rates) may have snowballed until they finally became too much for you to handle.  Realizing that just the monthly minimum payments are more than you can afford may be the wake up call you needed to finally take steps toward getting out of debt.

We’ve discussed a number of different options for New Jersey debt relief here on our bankruptcy blog. Filing for bankruptcy is one way to get rid of nearly all (or most) of your debts. Of course, you’d have to pass the Means Test in order to be approved for bankruptcy in NJ, but if you’re reading this because you can’t pay your minimum payments, you’ll probably qualify.

In the past, we’ve had people ask us if moving to a different state would erase debt. While you can move out of state if you want or need to (for work or other personal reasons), doing so won’t eradicate any of your debts. The only exception to this might be if you owe someone a large personal debt and you don’t leave a forwarding address for that person to find you. Of course, if s/he files a lawsuit against you, chances are that you’ll eventually be discovered by a process server.

Can My Debts Follow Me to Another Country?

The reason that moving from one US state to another won’t eradicate your debts is because every state in this country follows the same credit rating system and reports to the same reporting bureaus.

In contrast, other countries abide by different practices and policies when it comes to determining your credit worthiness. Additionally, a contract or agreement that you entered into in the United States (i.e. a credit card agreement) is not enforceable outside of the country. It is actually illegal for any of your creditors to file a lawsuit against you in any country that you aren’t currently living in.

[Sounds great, right?]

The bottom line is that you may be able to move abroad without your US/New Jersey debt ever catching up with you.

But! (There’s always a but!)

Should you decide to go through with this idea, you’ll need to have plenty of actual money (cash) in order to establish your residency abroad and to cover your living expenses. If you’ve been deeply in debt in the US for some time, it’s highly unlikely that you have a lot of cash lying around.

If you don’t have enough cash on hand to buy a home, you will quickly discover that it is much more difficult to borrow money (and establish a credit history) in other countries as compared to the US.

Additionally, there’s one entity that you’ll be hard-pressed to permanently escape – the IRS. If you are a United States citizen, you are expected to pay income taxes whether you live in the US or not, and this holds true even if you permanently leave the country. The only way to eliminate some of your delinquent tax debt is filing for bankruptcy, and even then there are very specific rules about which taxes can be discharged.

Any past due taxes that you accrued before you leaving the country will keep compounding every year that you remain a US citizen, no matter where you call ‘home.’ Furthermore, any creditors (aside from the IRS) to whom you are indebted have a right to write off any amount you failed to pay. When this happens, they may also file a ‘Cancellation of Debt’ form (1099-C) with the IRS. A 1099-C form essentially counts the past due amount as income that you ‘earned.’ Guess what the IRS is going to do with that additional ‘income’! That’s right – they’re going to tax it.

Short of  renouncing your United States citizenship, you’ll be hard-pressed to elude the IRS. Even moving to Mars probably wouldn’t help you evade tax debt.

Could Moving to Another Country Help Me Lower My Debts?

Ah – now you’re onto something! Moving out of the US actually is a great idea for those who are plagued with significant amounts of debt and want to pay it off rather than out-run it.

Although the cost of living in the United States isn’t the highest in the world, there are much more ideal places to live if you’re looking to free yourself from debt. As long as you have a way to make money, moving to a country with a significantly lower cost of living will mean you can pay your debt off much faster than if you remained living in the US.

With this approach, you’ll be able to breathe easier and sleep better at night knowing that you’re doing the right thing by paying back the money you owe. You will also get to experience a new culture and way of living, which is a pretty cool bonus! Your US citizenship will remain intact, and your credit score will soar, leading to a variety of options and financial freedom in the future.

Image credit: Megan Fitzgerald

5 Common Bankruptcy Myths: Debunked

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Without a doubt, there is no shortage of misinformation when it comes to bankruptcy. Veitengruber Law works hard to consistently provide valid, up-to-date information about bankruptcy in New Jersey to help our readers and clients educate themselves based on facts.

Today, however, we’re going to address some of the biggest bankruptcy myths and the truth that lies behind them. Much like the mythical mermaid, believing in something that isn’t based on facts won’t make it a reality any way you look at it.

  1. “You can’t discharge income taxes in bankruptcy.” For some reason, it is a common misconception that income taxes are non-dischargeable in a chapter 7 bankruptcy. The reality is that income taxes are the only type of tax debt that can be discharged! Read more about the rules associated with tax debt qualifications for bankruptcy here.
  2. “Because of the Means Test, I’ll have to file chapter 13, which won’t help me get rid of any debt, so why bother?” While the first half of this may be true, even if you don’t qualify for chapter 7 based on the Means Test, filing for chapter 13 does not automatically mean that you will have to repay all of your debts in full. In fact, most chapter 13 reorganization plans see the debtor only paying a fraction of their total debt amount.
  3. “I can’t risk ruining my spouse’s credit, so bankruptcy’s not an option.” This is something we hear constantly. In New Jersey, bankruptcy does not have to be filed jointly with your spouse. You may need to disclose how much money your spouse makes, but ultimately you can file solo and it will literally have no impact on your spouse’s credit score.
  4. “Bankruptcy is only for people who are unemployed and/or impoverished.” While we understand why this belief exists, we want to be clear that it doesn’t matter how much money you make when it comes to bankruptcy. As long as your debts and expenses outweigh your income, you will almost certainly pass the Means Test, which will qualify you to file for bankruptcy in NJ.
  5. “Any attorney can help me file for bankruptcy. The cheaper the better.” Did you know that some attorneys will take your retainer even if they have zero experience with bankruptcy law? Do your research and select a bankruptcy attorney in New Jersey who has hundreds of bankruptcy cases under his belt. Selecting a NJ lawyer with little to no bankruptcy experience may cost you less money up front, but the end result can be catastrophic.

At Veitengruber Law, we’ve made it our priority to help New Jersey debtors get out from under their debt. We provide our clients with personalized and in-depth meetings so we can evaluate your debts from every angle.

As our client, you’ll receive tailored advice and a team to walk you through the entire bankruptcy process from start to finish and beyond. Because we understand the financial strife our clients are facing, we offer free consultations and extremely flexible payment plans that fit into your reality.

“There are very few monsters who warrant the fear we have of them.” ~ Andre Gide

Image credit: AK Rockefeller

Can I Discharge Income Tax Debt in a Chapter 7 Bankruptcy?

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It’s a common misconception that income taxes cannot be discharged in a Chapter 7 bankruptcy. Most people assume that, even if they are deep in tax debt, that they would not be able to erase their tax debt through a bankruptcy proceeding. The good news is that those assumptions are wrong; however, there are some specific rules that apply when a debtor wants to discharge his or her owed back taxes.

The rules surrounding dischargeable tax debt are commonly referred to as the 3 – 2 – 240 rules. Any person wishing to discharge back taxes must meet all three of these qualifications, and the only type of taxes that are eligible for discharge via bankruptcy are income taxes.

A little more about the 3 – 2 – 240 rules:

The Three-Year Rule simply states that anyone wishing to discharge his or her back tax debt in a bankruptcy cannot file for bankruptcy until at least three years have passed since the taxes in question became due. For example, if Debtor A owes back taxes from the year 2013, he would not be able to file for bankruptcy until 2016. As tax day is almost always April 15 of any given year, Debtor A’s 2013 taxes would have come due on April 15, 2013 and therefore, he would not be able to file for bankruptcy until April 15, 2016.

 The Two-Year Rule sets out that a debtor must have filed the taxes in question at least two years prior to filing for bankruptcy. This rule applies even to debtors who filed their taxes late, as long as they were filed. For example, if Debtor B owed income taxes on April 15, 2014 but did not actually file her taxes until March 15, 2015, she will not be able to file for bankruptcy until May 15, 2017. This date puts her two years out from when she actually filed her taxes and also meets the Three-Year Rule as stated above.

The 240 Day Rule states that any tax assessment that is completed must take place at least 240 days before the date of any bankruptcy filing to discharge income taxes. This is usually only an issue if a debtor files a correction or is audited. For example, Debtor C files her taxes on time on April 15, 2012 but is audited by the IRS and is determined to have made an error in her tax paperwork. The date of the IRS’s new assessment of how much she owes didn’t take place until March 15, 2015. Because of this assessment and Debtor C’s error, she will now be unable to file for bankruptcy until October 12, 2015 (March 15 + 240 days), which meets all three of the 3 – 2 – 240 rules.

Obviously, anyone who commits tax fraud or willful tax evasion will not be eligible to discharge his or her taxes in a bankruptcy.

There are, of course, special considerations and your case may be unique, so if you wish to discharge your income tax debt via Chapter 7 bankruptcy, but aren’t sure if you’d qualify, seek out the advice of a seasoned bankruptcy attorney in your area.

Benjamin Franklin was quoted as saying, “In this world, nothing can be said to be certain, except death and taxes.” As it turns out, you may have other options!

Image credit: Alan Cleaver

Can I Keep My Tax Refund if I File for Chapter 13 Bankruptcy?

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Tax day is once again approaching, and, if you have filed for bankruptcy, you undoubtedly have some new questions this year about filing your taxes and whether or not you can receive federal tax refunds.

Here, we will focus on Chapter 13 bankruptcy and the effect it will have on your federal taxes and refund(s). Firstly, let’s go over the definition of this type of bankruptcy. In order to be able to file for a Chapter 13 bankruptcy, you must be either: gainfully employed, self-employed or a sole proprietor. The reason for this requirement is that a Chapter 13 is actually a reorganization of your debts rather than a forgiveness of your debts. In addition, all of your tax returns within the past four years must have been filed correctly and on time.

A Chapter 13 bankruptcy filing will allow you to keep possession of all of your assets/property. The purpose of a chapter 13 proceeding is to create a plan that will allow you to pay back all or most of your debts over the next 3 to 5 years. Other types of bankruptcies can result in you losing assets that you cannot pay for.

In order to file for a Chapter 13, your total debt burden must not be so high so that creating a reasonable repayment plan would be impossible. Your repayment plan will be based on your income, your reasonable living expenses, and the specific debts that you have incurred. As you will be required to pay a specific amount of money each month to a number of different creditors, you will be living on a very strict budget until these debts are sufficiently paid down or paid off completely, depending on what is specifically set out in your repayment agreement.

Around tax time, the appeal of receiving a substantial lump some of money in the form of a tax refund can be very tempting when you are living on such a strict budget every month as you repay your debts.

That being said, it is important to know that, for many people involved in a bankruptcy case, tax refunds are often delayed or are required to be used as payment toward your Chapter 13 debts. This is especially true if any or all of the reason you filed for bankruptcy is overdue federal tax debts.

When you file for a Chapter 13 bankruptcy, you will be required to put all of your disposable income toward repayment of your debts. Disposable income is defined as any income that is not used to pay for your reasonable monthly living expenses. Under this definition, your tax refund will be considered disposable income because you will not have listed any potential tax refund money when you filed for Chapter 13 bankruptcy.

However, it is possible for you to excuse your tax refund from being considered part of your disposable income on a year-by-year basis. This is only possible if you have encountered a necessary living expense that can legitimately be considered unexpected.

In order to be able to keep your tax refund during a Chapter 13 bankruptcy, a separate plan modification will need to be filed each year. In your Chapter 13 plan modification, you’ll need to specify exactly how much money you will be receiving as a tax refund.  You will also need to provide details that will prove your need to keep the money.

Anything that is considered part of your regular monthly living expenses will not be reason enough for the court to allow you to keep your tax refund during a Chapter 13 reorganization. The reason for this is that you agreed to certain expenditures when you originally filed your bankruptcy petition, and you will be held responsible for making ends meet with the income that you are currently generating.

To learn more about specific situations that may allow you to keep your tax refund if you have filed for a Chapter 13 bankruptcy, contact our office today. Feel free to use this contact form, and please use the information provided on our law blog to learn more about the ins and outs of bankruptcy.

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I Want to Cash Out My 401(k) – What Do I Need to Know?

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Cashing in your 401(k) is something that has crossed the minds of many Americans today in order to make ends meet, whether in response to an emergency, to put a child through school, or to help a friend or loved one. It certainly can be quite tempting to cash out your 401(k) retirement plan when it seems as if that money is simply sitting there and taking up space when it could be put to good use.

Before you make any decisions regarding cashing out, be aware that there will be consequences of this choice. Should you cash out your total 401(k) amount, you will immediately owe income tax on the entire chunk of change.

If you are under the age of 59 1/2 years old, you will also be charged a 10% early withdrawal penalty fee on top of paying taxes on the amount you cash out. That can put a pretty significant dent in your “take-home” amount.

Your 401(k) and other similar contribution accounts are funded with money from your paycheck before taxes. This is beneficial for you because, by taking money from your paycheck and putting it into your retirement fund, the amount of income you are taxed on lowers, bringing down your income tax bill. Naturally, you will have to pay taxes on your 401(k) money when it is withdrawn later in life, but you will not be penalized the extra 10% if you wait until you are age 59 1/2 or older to tap into those resources.

Another reason to resist cashing out your 401(k) early, is that, in some cases, you may be getting a matching contribution from your boss. These can range from fifty cents to a dollar for each dollar contributed by you. By cashing out early, you are essentially giving up this free money! Additionally, matching contributions aren’t taxed until retirement – which means your tax bill will remain the same while you are essentially making more money.

One exception is something called a Roth 401(k). This version of your retirement savings plan works in reverse to the traditional 401(k). To clarify, you will pay taxes on money as you contribute to this type of plan, so you won’t see an immediate tax break. However, you won’t be paying any taxes upon withdrawing money from a Roth 401(k) in retirement. This means that any money contributed to this account is free to compound – tax-free – without limit.

Let’s say you are considering cashing out your 401(k) to help a friend or loved one in need. In other words, you will essentially be gifting the money you take out. Unfortunately, simply because you are choosing to be generous with your savings does not afford you a tax break, and you will still be charged the full income tax amount on your 401(k) total. Luckily, you probably won’t have to pay gift tax – unless your account contains upwards of $5 million, which is the limit for tax free gifts throughout your lifetime.

Also keep in mind that if you withdraw $14,000 or less and gift that amount, you do not have to report it to the IRS. If you withdraw more than $14,000 as a gift, you will have to fill out form 709 “United States Gift Tax Return.”

The bottom line about cashing out your 401(k) for things other than retirement is this: Do your research. Make sure that you’re making the wisest decision possible given your current circumstances. If you need help determining whether or not you should raid your retirement account, contact an attorney with experience in the area(s) of Estate Planning and/or Bankruptcy.

Last Minute (Legitimate) Tax Hacks

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As Tax Day 2014 creeps closer and closer, there are still many people who have not filed their tax returns. As a matter of fact, plenty of people wait as long as humanly possible to either e-file or “snail mail” the necessary paperwork every year. Whether it’s due to fear, being too busy or procrastination, if you are one of the “later filers” – we’ve got some tips that you can still take advantage of this year.

And, while less than 1% of tax returns end up being audited, it’s always best to do everything possible to avoid being selected for “further review.” So, even if your filing right at the deadline (or if you’re thinking of requesting an extension), take our word for it when we say that these are definitely things to pay close attention to:

Get the most out of your health savings accounts – In 2013, individuals with high deductible insurance plans were able to contribute up to $3250 of tax-deferred money into their account (individual). In addition, they were able to contribute up to $6450 (family plan). Healthcare savings contributions have a deadline of April 15, 2014.

Be on the lookout for illegitimate tax preparers – The best way to have the most control over your tax return is by preparing it yourself. This is a good idea for individuals who make less than $52,000 a year and don’t have a lot of deductions. However, if you are planning to hire a tax preparer, choose carefully. Plenty of tax preparers make false claims and in order to come through on those false claims, they may indeed falsify your taxes. Steer clear of anyone who states that they can obtain a larger refund than anyone else. It’s also a good idea to walk away if a preparer charges you a percentage of your tax refund. Always do a little snooping about the preparer’s credentials – asking your friends for a referral to someone they trust is a good way to ensure that you’ll be working with someone above board.

If you are married, file jointly – Filing together with your spouse is a great way to take advantage of tax savings such as more exemptions, dependents, IRA contributions, child tax credits, earned income tax credits, and itemizing deductions. Additionally, any health insurance policy that you have purchased for your spouse through your place of employment gives you tax-deductible premiums. What’s really cool is that if you were already legally married in the years 2010 through 2012, you can actually go back and make amendments to those tax returns based on new tax laws that have come into play since then.

Get your deductions in a row

  • In the age of entrepreneurship, freelancing and working from home, deducting your home office just became a whole lot simpler! If you qualify, you can deduct $5 per square foot of the size of your home office, with a maximum of 300 square feet.
  • If you itemize: you’ll have the choice to either deduct your state and local income taxes OR the total amount of state and local income taxes that you paid the previous year.
  • Did you switch jobs last year? If your new job required you to relocate, you may be able to deduct your costs of moving for the job. This includes: the cost of driving your car to your new location, parking fees, tolls, the cost to fly to your new location, and temporary lodging costs during travel.

If you have a lot of questions about the complexity of federal tax codes and how they relate to you, be aware that you do have options regarding who you pay to help you! You want to pay for advice and knowledge rather than a typist. A storefront tax agent will get the job done, but a certified CPA or accountant has more knowledge and will be available to answer your questions at any time throughout the year. You can also have a tax attorney help you file your taxes. Naturally, the more experienced professionals (CPAs and attorneys) are going to be more expensive, but it may very well pay off because of their sweeping knowledge of constantly changing tax trends and tax laws. Oh, and if you itemize, you may be able to deduct any fee that you pay someone to prepare your taxes on next year’s tax return.

Need help deciding who to hire? Send us a message at Veitengruber Law and we’ll put you in touch with a respected and trusted member of our network!

What’s the Best Use for My Tax Refund?

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Image credit: StockMonkeys.com

As we edge closer and closer to tax Day 2014, many of you have likely already received your tax refund, or are eagerly anticipating it.

Every year, the possibilities for your tax refund seem endless: you vow to pay off some debt, invest it, put it into savings or reward yourself for your hard work by getting a new, expensive toy or gadget.

For some people, all of these are acceptable choices. But for so many others, there is an even better and much wiser place to put your tax refund money.

You know the feeling. You anticipate your refund for months and months, only to have it spent in the blink of an eye. And, it can be a real drag when that seemingly large chunk of dough hasn’t had nearly as much of an impact as you had thought it would.

Here’s what we suggest: instead of burning through your tax refund with little or nothing to show for it – put the money to real use and hire a bankruptcy attorney.

Naturally, this choice isn’t necessary for everyone. If you have all of your affairs in order – major kudos to you! However, if you find yourself frantically looking around the hole you’ve fallen into, wondering how on earth you’re going to get out – what you really need is a fresh start.

If your debt is so intimidating and seems completely insurmountable, there’s no doubt that you need help rebuilding your finances. Are you able to save for retirement? Many Americans are so far in debt that they are unable to put any money aside towards their retirement years. This is a scary thought!

Picture yourself in 20 years, 30 years, whatever the number may be that puts you at retirement age. Now imagine yourself with no income, no savings, and potentially still paying off your debts! That is no way to spend your golden years.

While the thought of filing for bankruptcy may be scary, the image of yourself at retirement age with empty pockets should be terrifying. If you’ve considered filing for bankruptcy in the past, but hesitated due to the cost of a bankruptcy attorney, what better time to make the move then when the money you’d need is right in front of you?

With our help, you can start getting creditors off your back today. Instead of slowly chipping away at your debt while simultaneously being unable to save for retirement, turn that tax refund into a legal retainer and let us pull you out of the debt hole for good.

We make it our business to help you, not to take your money and sit on it. With reasonable fees, free consultations and an extremely compassionate and determined bankruptcy attorney, you have absolutely nothing to lose, and everything to gain.

Call Veitengruber Law today, and get started working on a future you can get excited about. (732) 695-3303

Paying Taxes When You’re Self-Employed

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It can definitely be confusing when tax season rolls around if you are currently working as a 1099 contractor, or in other words, if you are self-employed. If you have been working from home – either on your own business or as an independent contractor, you do still have to pay income tax, as long as you’re actually generating an income. The tricky part is, now you are considered to be the employer and the employee.

Most 1099 contractors love the flexible work schedule and increased amount of independence that comes with being self-employed. However, one of the negatives that unfortunately also comes with the package deal, is figuring out and managing to pay your own income taxes properly and on time.

After all, no one wants to get in trouble with the IRS.

Just like a W-2 employee, your income taxes as a 1099 contractor will be determined by how much you earn per year. You can pay your taxes electronically or the good old-fashioned way: by mail.

The first thing you’ll need to do when determining how much of your wages to fork over to the government, is to add up all of your yearly income. Be sure to include all payments you have received from any and all clients throughout the entire preceding calendar year. The nice thing about working independently, is that you can then deduct business expenses and tax credits from your gross earnings. You can deduct virtually anything that you use to help run your business, ranging from the supplies you use on a daily basis and office furniture in your home to any expenses related to traveling for your business. Another nice bonus of working for yourself, is that you can actually deduct part of your mortgage payment if you have a home-based office.

Next, you should also know that as an independent contractor, you will be required to pay something called a Self-Employment tax, or SE tax. This is because you no longer have an employer taking money out of your paycheck to go toward Social Security and Medicare.

By using form 1040-ES, you will be able to determine whether or not you are required to pay your SE taxes, as well as your income taxes, quarterly, or if you can simply pay them once per year.

After filling out the worksheet attached to form 1040-ES, you will know your estimated quarterly tax payments. Included with form 1040-ES are blank vouchers that independent contractors can use when sending in quarterly tax payments to the IRS. Remember, you can also pay quarterly using the IRS’s electronic payment system.

Even if you pay your SE and income taxes on a quarterly basis, you will still be required to file an annual return every year. This is because most sole proprietors estimate their quarterly income. Your annual report will show the IRS your actual earnings for the entire year so that any corrections may be made to the quarterly payments that you have submitted.. To file your annual return, you can use the Schedule C form, found on the IRS website.

Filing your taxes as a sole proprietor or 1099 contractor can be confusing, especially if this is your first year in business for yourself. By using the tips in this article, you should be able to successfully handle filing the appropriate forms and making the correct payments.

Should you need further assistance, we can easily direct you to a trusted tax preparer within our vast professional network. It’s as simple as leaving a comment after this post, sending us a quick note using our Contact Us form, or calling/dropping by our office. As always, we’re happy to help!