IRS Debt Forgiveness: Is My Debt Forgivable?
If you, like so many in our country, have been working tirelessly with credit card companies to forgive some of the debt that has been hanging over your head for years, you should keep one important thing in mind. As surprising as it sounds, there are real tax implications for resolving that credit card debt.
Even after you successfully negotiate your issue with the credit card company, you will very likely receive a notice from the IRS called a 1099-C. Called a cancellation of debt form, a 1099-C is sent to you by the IRS because they consider forgiven debt taxable income. If a credit card company reduces your debt owed to them by more than $600, they are required, by law, to submit a 1099-C to the IRS and you will be taxed for this amount.
A Big Surprise
So while credit card companies may forgive your debt, taxes owed on your forgivable debt are not. This is often quite a surprise to consumers who think that they are finally catching a break or “getting ahead” by getting out of some of their credit card debt. To illustrate the point, if your credit card bill is $19,000 and you and your credit card company come to an agreement that you can only afford to pay $10,000, the $9,000 that is forgiven is counted as miscellaneous income on your tax return. This can cause all kinds of tax issues for you and even put you into a different tax bracket and cause you stress and headaches come April 15th.
The key for individuals who are facing this issue is awareness, knowledge and coming up with a plan. If you think that this situation may apply to you, the best possible course of action for you to take is to consider making an appointment with a reputable tax firm. You will need to ask plenty of questions up front to be sure that the tax firm has a true understanding of the issue and the ramifications of debt forgiveness. If you are not confident in the tax firm you are talking to, then move on to another firm.
Hire a Tax Firm to Help
For example, a tax firm can review your tax situation and determine whether you might qualify for possible exceptions to this rule, which allow individuals to reduce the amount of income they must claim from the forgiven debt. These exclusions can get complicated, but are usually worth pursuing – especially if you have professional help and support.
Success Tax Relief, based in Texas, has a track record of helping clients all over the country with complicated tax issues. We can come up with a strategy to help you deal with your 1099-C problem and determine whether you might qualify for an exclusion or reduction. If so, Success Tax Relief can help you complete and submit the necessary paperwork to the IRS to get this resolved quickly and easily.
We understand the stress and determination involved in working to get yourself out of credit card debt and can help you understand all potential tax implications. Contact us today to get started!