Tax Information With A Mother's Touch
Published by Eva Rosenberg, MBA, EA
Volume 6, Issue 256 April 23, 2004
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Tax Information With A Mother's Touch Published by Eva Rosenberg, MBA, EA Volume 6, Issue 256 April 23, 2004 |
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 » From: Las Vegas, NV Dear TaxMama: We recently received a tax bill of $2100 based on a 1099C submitted to the IRS (late) by a credit card company for a cancelled debt of $7600. The IRS is now counting this cancelled debt as additional income. Hence, our new tax bill. Why is a cancelled debt considered additional income? The cancelled debt represents an amount that we couldn't pay in the first place. We are working with Financial Rescue Services (a debt reduction company) who works with creditors to reduce debts. We pay them $835 per month in an effort to reduce our overall debt from $47,000 to about $29,000. The problem is with the IRS considering each cancelled debt as additional income, it really increases our tax burden. What are our options to get the tax bill of $2100 reduced? Will all of our cancelled debt in the future (approx. $11,000) have to be considered additional income as well? Thanks, Stephen  Dear Stephen, I suppose wanting to know if there's an out is a good idea. Asking why, on the other hand .... well ... talk to your legislators. They write the laws. IRS simply enforces their will. Yet it really does seem SO unfair. Here you are trying to get it all together and suddenly IRS swoops down and grabs some more. But, yes, they are going to consider all cancelled debt as income. It's as if someone gave you money to pay off all that debt. Besides, it's in the tax code. The people at Financial Rescue Service really need to be aware of this issue and incorporate it into your overall plan. This isn't new. Shame on them for not bringing it up. It should be their business to know about the tax results of their actions. On the bright side, if you are insolvent, there is a special exclusion. Click on the link above and scroll down to the Insolvency exclusion. Print that out and take it to your tax professional. DO invest the few dollars to have a Tax Pro prepare the paperwork that must go with your return to report this properly. Doing it right will eliminate your taxes AND reduce the numbers of letters you get from IRS questioning this. Good luck. Keep up the regimen. It will be over before you know it. Best wishes, Eva Rosenberg Your TaxMama  |
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| Library of Congress - ISSN 1532-0790 Copyright © 2000-2007 - Eva Rosenberg |
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