Tax questions: Medical-related Ch 7 bankruptcy, Legal settlement for personal injury

[Anonymous]

2016 will bring both a final discharge in my Ch 7 bankruptcy case (massive medical bills) and a legal settlement for personal injury. I plan to do my own taxes for 2015 as I normally do, but wonder if I will have to have a professional assist with 2016. I can't seem to find out if the following are true:

1. the amount discharged in the bankruptcy is regarded as taxable income.
2. the settlement for personal injury is not taxable.

I'd like to get some solid advice now so that I can try to minimize any possible tax burden that would need to be paid off in the spring of 2017. Maybe I can adjust withholdings or do something else.

I should also mention that I am getting married in Fall 2016. My fiance and I were professionally advised to wait to get married because we each are paying (separately) for a child's college tuition. The kids are graduating soon (mine this spring, his next December) so FAFSA won't matter anymore by the time we walk down the aisle. Fiance has no debt and excellent credit so I don't want to screw him over with a huge tax bill our first year as newlyweds.

If I do have to have a professional do my taxes, I am nervous using HR Block or another mall type tax firm. I always worry that they aren't particularly well-trained or motivated since most are seasonal employees. I'd like to find a reputable tax preparer with experience with bankruptcies and settlements.

I apologize if I come across as ignorant. I really am lost here. 2015 has been a horrible year in terms of health and finances. I don't want the stress to leak over into 2016 and 2017.

Thanks in advance.

[Anonymous]

Ask people for recommendations for an accountant now. Just post something on Facebook or send out a group email to your friends. You don't need to mention any details, just ask for a really good accountant. I have read on this board that settlements are not taxable, but you should absolutely use a professional in your situation.

[Anonymous]

Where do you live? Someone on the board can make a recommendation.

[Anonymous]

Anonymous wrote:Where do you live? Someone on the board can make a recommendation.

Thanks! Montgomery Co., but I am willing to travel to DC or NoVa for someone reputable.

I am especially worried about the possibility that the discharged medical debts are taxable income. I was awarded the bankruptcy because my medical debts far exceed my annual salary. It looks like those discharged debts could double my taxable income and bounce me into a much higher bracket. I have not received comprehensive bankruptcy advice and can't really afford a different lawyer. I am hoping to get back on my feet before the wedding (which is very small and simple so we're not incurring any debt there). The settlement will be used to reestablish my emergency fund in case I have to do another round of short-term disability, but I'm wondering if I'll need it to pay off taxes in 2017.

[Anonymous]

Anonymous wrote:Ask people for recommendations for an accountant now. Just post something on Facebook or send out a group email to your friends. You don't need to mention any details, just ask for a really good accountant. I have read on this board that settlements are not taxable, but you should absolutely use a professional in your situation.

Thanks. I'm nervous about being recommended friends' nieces or distant cousins' BILs who might be a nice relative, but an inexperienced accountant. I will try to vet whoever is recommended though would love to avoid the awkwardness of turning down someone's loved one. This is how I ended up with a less than great bankruptcy atty.

[Anonymous]

I've used Brandt & Assoc in Old Town for years and they have always been very good (I live in MoCo). I have been audited a number of times due to some unique things in our taxes and they are always to the penny. One of our auditors complimented them on their work. They get very busy soon after the first of the year so don't wait until February to call them.

[Anonymous]

Anonymous wrote:I've used Brandt & Assoc in Old Town for years and they have always been very good (I live in MoCo). I have been audited a number of times due to some unique things in our taxes and they are always to the penny. One of our auditors complimented them on their work. They get very busy soon after the first of the year so don't wait until February to call them.

Thank you!

[Anonymous]

Debt that is cancelled in a bankruptcy case under the Bankruptcy Code is excluded from gross income.
http://taxmap.ntis.gov/taxmap/pubs/p908-007.htm

[Anonymous]

Whether your settlement is taxable (in all or part) depends on the specific details of the settlement. You may need to consult with a tax adviser. Here is a short summary that you may find helpful:

http://www.mirbar.com/faqs/is-my-personal-injury-settlement-taxable.cfm