Are Your Tax Withholdings Correct?

One common issue in a bankruptcy case is whether the person filing bankruptcy will be able to keep their tax refund (many times it’s a refund that they haven’t yet received). Depending on what assets you have and which exemptions you are using (Minnesota state exemptions or the Federal exemptions) you may be able to keep your entire refund. I know that a lot of people like to receive large tax refunds, because it is a forced savings plan. However, if you are regularly receiving large tax refunds, and you are also thinking that you might have to file bankruptcy, you might be providing the IRS with a nice interest-free loan to the detriment of your personal finances. If you don’t want to receive a large tax refund, you will need to change your withholdings. The IRS has a withholding calculator on its website. To see if you are withholding the right amount from your paychecks, start out by using the withholding calculator. It is also a good idea to double-check your results with an accountant or a CPA. If you change your withholdings so that you won’t get a tax refund, you won’t have to worry about exempting a large tax refund from the bankruptcy estate – and that means that you won’t have to worry about keeping your tax refund.

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