The quickest way to get your refund is to e-file your tax return and have your refund directly deposited to your checking and/or savings account.

The IRS has certain dates on which they send direct deposits and when they mail paper checks. There is a seven day delay between the two dates which means that your direct deposit will be sent to your account(s) seven days before a paper check is even put in the mail.

The sending of your direct deposit refund could take as few as six days or as many as 15 days from the date that you filed your tax return. The reason for this is that returns are batched in groups by the IRS. Each group has a specific date span. For instance all returns e-filed between February 18th and February 25th will have their direct deposit refunds sent on March 5th or a paper check mailed on March 12th. The IRS has printed a convenient chart showing all 2010 dates through 10/21/2010. Follow this link to see the chart.

If you would like to see the status of your refund, the IRS has that information 72 hours after you e-file your return. Go to www.irs.gov and click on Where’s My Refund? You can also call the IRS at 1-800-829-1954.

For tax years 2009 and 2010 undergraduate students may qualify for the Hope Credit (now called the American Opportunity Credit) for four years instead of two and be eligible for a refund of this credit up to 40% of the credit. Also what qualifies as education expenses for the Hope Credit has been expanded. This is great news since the Hope Credit offers the largest amount of credit - up to $2,500.00 per student.

Previous to tax year 2009, this credit was only available for the first two years of undergraduate education, was not refundable, and was limited to $1,800.00 per student. Also previous to 2009 books and supplies for school did not count as part of qualified education expenses. Now for a student’s first four years at a qualified educational institution, the credit has been expanded to include both tuition expenses as well as books and supplies.

Who qualifies for this credit? An eligible person is a student who is a U.S. citizen or U.S. resident alien, still in their first four years of post secondary education (private high school tuition does not count), in a degree program or a program that leads to a recognized education credential, enrolled at least half time in one or more quarters/semesters during tax year 2009 (or tax year 2010 for taking the credit on your 2010 tax return), have qualified expenses, and not have a filing status on their tax return of Married Filing Separate, nor be claimed on another person’s tax return, or have had a felony conviction.

Do you need to pay your own education expenses to qualify for the credit?  No.  Education expenses can be paid by a third party on your behalf and still be eligible for the credit on your tax return.  For example, you file your own return and claim yourself.  Your grandmother pays $10,000.00 directly to the school for your tuition, and your parents spend $500.00 on books and supplies needed to attend school.  On your tax return you can use $10,500.00 to calculate your credit even though you did not personally pay any of it.

Can my parents take the credit even though I am not being claimed on their tax return as a dependent?  No.  In order for taxpayers to take the credit using funds paid by their child, they must claim the child on their tax return as a dependent.

How much is the credit?  The credit is 100% of the first $2,000.00 of qualified expenses paid + 25% of the next $2,000.00 paid up to a maximum credit of $2,500.00 per student.  This means that if parents are paying for education for their three college students all being claimed on their tax return, they can take a maximum credit of $7,500.00 ($2,500.00 for each student).  This is quite different from the Lifetime Learning Credit where the maximum amount of credit that can be taken is $2,000.00 per tax return.

Can I take this credit if I do not owe any tax on my return?  Yes.  It is possible that you may qualify to take up to 40% of the credit as a refund on your tax return so it is worth filing your return even if you know you will not owe any tax.

For more information on the American Opportunity Credit go to irs.gov.

Did you know that if you make a donation for Haiti relief efforts from January 11, 2010 to March 1, 2010 you can claim the tax deduction on your individual 2009 tax return?  The IRS enacted a special relief provision on January 22, 2010 that allows you to deduct any cash donations made to a qualified charity for Haiti relief on your 2009 or 2010 Schedule A.

What does “cash” donation mean, and what is a “qualified” charity?  A cash donation includes any donation made via a check, credit card, debit card or other form of cash payment.  It does not mean property donations.  A qualified charity is a United States non-profit organization as described in Section 501(c) (3) of the Internal Revenue Code.  Many organizations qualify.  If you are unsure, just ask.

Once I donate, what records do I need to keep to prove my donation?  The best proof is a statement from the organization showing the amount donated, the date of donation, and the organization’s name.  Other forms of proof are a cancelled check, credit card statement, or in the case of a text message donation, your phone bill so long as it shows the date of donation, to whom it was donated and the amount of the donation.

Just as with other charitable donations, only taxpayers who itemize their deductions on Schedule A can take the deduction (the phaze out on Schedule A deductions for higher income taxpayers still applies).  This means that if you take the standard deduction, you cannot take any charitable donations.  However since there is a choice as to the year you take the donation (2009 or 2010), just because you are not itemizing your deductions in 2009, does not mean that you will not be itemizing  your deductions in 2010.  So hang on to those receipts.  For more information you can view a YouTube video on this subject and/or go to irs.gov.

Who says the IRS is not here to help you!  The Internal Revenue Service has a list of 10 suggestions they think will help taxpayers in the preparation and filing of their 2009 personal income tax returns.  While we agree that some of the tips are helpful, self prepared returns can be a problem if you have any complications or an unusual situation.  Be sure to retain a copy of the tax return if you file electronically.  Now, here is the IRS list:

1. Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return.
2. Be on the lookout W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return.
3. Try e-file When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file.
4. Check out Free File If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return. Visit IRS.gov to learn more.
5. Consider other filing options There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.
6. Consider Direct Deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.
7. Visit IRS.gov again and again The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, answers to frequently asked questions and updates on tax law changes.
8. Remember this number: 17 Check out Publication 17, Your Federal Income Tax on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.
9. Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.
10. Don’t panic! If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040.

We recommend tips 1 and 2 about collecting information.  If you forget a 1099 when you prepare your return you will receive a letter from the IRS telling you about it and suggesting a change to your return.

Tips 5 and 6 are good to remember and we often recommend direct deposit of tax refunds.  It is important for our clients to receive and spend their tax refunds before they file bankruptcy.  Direct deposit speeds the refund process considerably.

Tip number 7 about www.irs.gov is interesting but information overload is a real possibility.  The IRS website has thousands of pages and a really poor search engine.  It is an easy place to get lost.  However, tip number 8 about publication 17 for 2009 is a good one.  That publication can be helpful if you are preparing your own return.

Be careful if you prepare your own return.  It is easy to make a mistake that can cost you thousands of dollars in extra tax or in lost refund.  We prepare returns for our clients, when asked, at a cost that is usually competitive with professional preparers.  However, we need to have all required information in our office at least three weeks before the filing deadline if you expect us to prepare a timely tax return.

Forget about calling the IRS.  Tip 10 is a waste of time.  The IRS Inspector General for Tax Administration admits that many calls to the IRS go unanswered.  It is easy to sit on hold for as much as an hour without the call being answered.  During the tax filing season, the IRS shifts staff from collections and enforcement into phone answering duties.  This can result in the phone being answered by someone who does not prepare or examine tax returns as part of their job and who may give you the wrong answer to your questions.

Debtors often have property subject to a lien when they file for bankruptcy.  In order to keep the property debtors can often sign a reaffirmation agreement.  A reaffirmation agreement is a new contract between the debtor and secured lender.   The contract is the debtor’s promise to continue making future payments in exchange for the lender’s promise to not repossess.  Reaffirmation agreements must be approved by the bankruptcy court.  Bankruptcy Rules reqire reaffirmation agreements be filed within 60 days after the first meeting of creditors.

The decision to sign a reaffirmation agreement is unique to each debtor.  It should be based on the debtor’s personal and financial circumstances.  In determining whether to sign a reaffirmation agreement, the debtor should ask two questions.  How important is the property?  Will it be possible for the debtor to continue making payments on the property in the future?

It is important for the debtor to ask these questions because if the debtor defaults on a future payment, the reaffirmation agreement gives the secured lender the legal right to repossess.  This is true even though a discharge in bankruptcy prohibits future collection efforts by all creditors listed in the bankruptcy petition.  The reason that collection efforts are not stayed is because reaffirmed debts are not discharged in the bankruptcy.  Therefore, the usual protections afforded by the automatic stay in bankruptcy are not present in the context of reaffirmation agreements because in the event of a default by the debtor, the creditor may lawfully institute collection efforts.

Before signing a reaffirmation agreement, the debtor should consult with its’ attorney regarding the terms of the new agreement.  The attorney can advise the debtor whether the reaffirmation agreement is in the best interests of the debtor.  Nevertheless, in the end, the decision to reaffirm the debt is the debtors to make.   Even if the debtor signs the reaffirmation agreement and later changes its’ mind, it has a window of time in which to revoke the agreement.  The debtor can revoke up to 60 days after signing the agreement or up to the date of discharge, whichever occurs first.  Thereafter, the debtor must continue making payments to the secured lender or face potential repossession.

The Oregon Department of Revenue has put in place a temporary amnesty policy for audits from October 1, 2009  through  November 19, 2009 (the amnesty period).  This means that if your audit is ongoing, and you have not been issued a Notice of Deficiency with your audit results you may be able to participate in the amnesty program.

Previous to this policy, only those taxpayers who had not been contacted by the OR Department of Revenue qualified.  What is amnesty?   Amnesty can mean a 50% reduction in interest and 100% reduction in penalty on the tax that you owe.  Often times this is a huge savings!  Please see the blog “Limited Time Oregon Tax Amnesty Program” for all of the details as well as a link to the amnesty website.  At the time this article was written the official Oregon Amnesty website did not mention the temporary audit policy.  However, we received written notice of the audit amnesty policy today.

What do you do if you are being audited by the Oregon Department of Revenue?  To take advantage of the amnesty program you need to enter into a closing agreement under ORS 305.15 between October 1, 2009 and November 19, 2009.  By entering into this agreement you waive your right to appeal the audit adjustments.  The closing agreement is in place of the Amnesty Application.  If you are interested in doing this, you need to act now.  Call your auditor whose telephone number should be listed on your audit notice.  If you have lost your notice, contact the Oregon Department of Revenue at 503-378-4988.

The Automatic Stay is an Order from the Federal Bankruptcy Court requiring that all debt collection actions against a person or business that has filed for bankruptcy protection be suspended or terminated as of the date of filing.  The court ordered stay is entered automatically in all bankruptcy cases unless some limited statutory exceptions apply.  The automatic stay is a type of injunction or formal command by the court that prohibits any act intended to collect a debt or recover a claim against the debtor that arose before the bankruptcy case was filed.

The automatic stay is governed by 11 USC §362, a lengthy part of the bankruptcy code that details its provisions.  This important statute prohibits the taking of just about any type of action that improves or advances the position of a creditor after the case has been filed, including but not limited to:

• The commencement or continuation of any judicial, administrative or other process against the debtor;
• The enforcement of a judgment that was obtained before the bankruptcy was filed;
• Any act to take possession or control of an asset of the debtor or the bankruptcy estate;
• Any action to create, improve, complete or enforce any lien against an asset of the debtor or the bankruptcy estate; or,
• The setoff of any debt owing to the debtor that arose before the bankruptcy case was filed.

The automatic stay is intended to provide time for the debtor to reorganize or the bankruptcy trustee to sort out the assets and liabilities of the creditors without interference.

The automatic stay does not stop a criminal proceeding against the debtor.  It does not prevent the commencement or continuation of most family court matters or other special proceedings such as:

• An action to establish paternity;
• An action to establish or modify an order for domestic support obligations;
• A proceeding concerning child custody or visitation;
• An action to dissolve a marriage (except for the division of property);
• A proceeding regarding domestic violence;
• Actions for the collection of domestic support obligations (when property of the estate is not involved);
• The withholding of income for the payment of a domestic support obligation;
• The withholding, suspension or restriction of a driver’s license, professional or occupational license, or recreational license under state law to enforce the payment of a domestic support obligation.

There are some other, less common exceptions that apply in very specialized situations generally related to the police powers of the government to enforce laws or regulate commercial activity.

The 2005 bankruptcy code revisions contained some important new provisions that limit the power of the automatic stay.  In order to prevent repeated bankruptcy filings, when a bankruptcy case has been dismissed once within one year, the stay only lasts for the debtor for a period of 30 days unless the court agrees to extend it for good cause.  If there have been two bankruptcy cases dismissed within one year, there is no automatic stay at all for the debtor. 

Because bankruptcy has become very technical and a case can be dismissed for many reasons, the possible loss of the automatic stay makes it particularly important to get things right when the bankruptcy is filed.  This is a very good reason to hire a competent bankruptcy lawyer to help you.

The automatic stay is a very powerful court order that gives the debtor a breather and stops creditors in their tracks.  It can stop a wage garnishment, a tax levy or even the foreclosure sale of a home or other property.  If the bankruptcy is properly filed, the automatic stay will give the debtor a second chance to keep their home and protect their income.  The stay does not last forever.  It can be lifted by the court to allow a foreclosure to go forward or a car to be repossessed to protect a secured claim by a creditor.  However, when it is possible for the debtor to bring a defaulted home or car loan current, the automatic stay is an important ally for a debtor in bankruptcy when a financial reorganization is possible.

Giving grandma the car, the kids the keys to the bungalow in Hawaii or putting Uncle Joe on title to the stock certificate is never a good idea for someone considering filing for bankruptcy.  While giving stuff to family members may seem innocent enough, it is something that can come back to haunt a debtor.  This is because when an individual files for bankruptcy protection, he or she automatically subjects their past and present financial lives to close inspection.  The trustee administering the bankruptcy case typically has a window of time, up to six years in some states, in which to look back and review each transaction entered in to by the debtor.  Furthermore, the review is not limited to transactions involving the exchange of money. 

Under the Uniform Fraudulent Transfer Act, adopted by a majority of states, prepetition transfers by the debtor are subject to attack by the bankruptcy trustee.   Whether or not the debtor engaged in prepetition planning, the trustee may need only prove that at the time of the transfer, the debtor was unable to pay his or her debts and did not receive reasonable value in exchange for the transfer.   The burden of proof then falls on the individual debtor. 

If the trustee establishes that the prebankruptcy transfer was fraudulent, the debtor faces three potential consequences.  The first consequence is that the family member will have to return the property.  Depending on the case, the next consequence is that the United States Trustee may file a §727 objection to discharge complaint.  If the judge grants the objection to discharge complaint, the debtor loses his or her right to obtain a discharge.   Finally, under certain circumstances, the United States Trustee has the discretion to recommend a criminal complaint to the United States Attorney.   This means that in a worst case scenario, the debtor could wind up with an angry relative, a stack of nondischargeable debt and even a jail sentence.

Having a car repossessed can be a traumatic experience for anyone.  Feeling powerless in this situation is understandable.   However, there may be no need to despair!  Most Chapter 13 debtors can get their car back once they file for bankruptcy.  When a Chapter 13 bankruptcy petition is filed, an estate is created of the debtor’s property.  The estate may be comprised of property that is subject to a creditor’s interest.  A Chapter 13 filing grants debtors an overriding interest in estate property that trumps even a creditor’s interest in the property. 

Now picture in your mind a medieval battle in which one knight has a shield and the other has a sword.  In a vehicle repossession situation, the creditor is the knight with the sword, seeking to dismember the debtor.  Once a Chapter 13 petition is filed, the debtor has a shield created by the Bankruptcy Code.   These provisions prevent creditors from reaching property of the estate.  They also work to protect against seizure of estate property both before and after the date of filing. 

A debtor uses the protections afforded by the shield by filing with the court a Motion for Turnover.  A Turnover Motion is essentially the process of asking a judge to force a creditor to return property of the estate.  Where a vehicle was repossessed prior to the petition date, the creditor must give the debtor possession of the vehicle.  This is true even in the situation where the creditor had the “lawful” right to repossess under state law. 

As you might expect, some creditors will contest a Motion for Turnover.  Fortunately for most Chapter 13 debtors, the Bankruptcy Code provides for alternate grounds in which to seek return of a repossessed vehicle.  For example, violation of the automatic stay is often a challenge a debtor can make to a creditor’s repossession.   And in many states, if the vehicle sustains damage during the physical process of repossession, damages may be awarded.  As devastating as having a vehicle repossessed  might be, for individuals filing under Chapter 13, relinquishing complete control of the vehicle may not be necessary.

A debt discharge is the goal of consumer debtors when they file bankruptcy.  In Chapter 7, a discharge may not be available to everyone.  To ensure that potential filers were not abusing the system, Congress created a Mean’s Test that debtors must “pass” in order to invoke Chapter 7 bankruptcy relief.  When computing the Mean’s Test formula, there are several steps to determine whether a presumption of abuse arises.  The first step is to compare the debtor’s annual income to the median income of the state in which they reside.  The US Trustee website keeps track of government figures in this area.  The applicable state median income will go up or down depending on the size of the debtor’s family. 

Assuming that the debtor’s annual income is less than the state median income, the second step is to compute the debtor’s current monthly income.  Current monthly income is like a glimpse into the past in the sense that the debtor’s income for the six months prior to bankruptcy filing is averaged together.  Once the debtor’s current monthly income is calculated, the next step is to subtract a laundry list of expenses including such things as mortgage and car payments as well as particular allowed and allowable expenses. 

After expenses are subtracted from current monthly income, the resulting net total is the debtor’s disposable income.  A debtor’s disposable income is important because it measures the ability to repay creditors.  Disposable income is then multiplied by 60 to project how much disposable income the debtor will have over the next five years.   If, after the calculation is made, the total is greater than $10,950, a presumption of abuse arises.  On the other hand, the debtor “passes” the Mean’s Test if the number is less than $6,575.   If the amount is somewhere between $6,575 and $10,950, a presumption of abuse will arise if the amount exceeds 25% of a certain type of unsecured debt.

Even if the debtor does not “pass” the Mean’s Test, it may still  be able to file under Chapter 7.  This is because when Congress created the Mean’s Test, they provided a list of exceptions that may apply in an individual debtor’s case.  Therefore, Chapter 7 may be a viable option for someone considering filing for bankruptcy, despite potential bumps in the road that may come up when computing the Mean’s Test formula.