If you had a debt settled or "forgiven" in IRS lingo, and it was for more that $600, you most likely will receive a 1099-C. But, you may not be required to pay additional tax on the forgiven amount, but YOU MUST FILE THE CORRECT FORMS AND DOCUMENTATION.
We have prepared a simple, easy-to-use instruction packet for you.
Get yours now:
Receiving an IRS Form 1099-C is a little scary, but if you look closely at the form, you will see something like this:
"...do not include canceled debts in your income to the extent you were insolvent immediately before the cancellation of the debt. If you exclude a canceled debt from your income, file Form 982."
OK, now what?
First, at the time of settlement (most likely last year), were you INSOLVENT?
According to the IRS, "insolvent" means that your debts (all liabilities, not just this settled debt) were greater than your assets (net worth).
You'll need a simple, Basic Financial Worksheet:
You will list all of your assets, net value of your home, autos, etc. Most people who have have debts settled would have had little if any equity in their home and/or auto.
You most likely have little or no savings, hence the financial hardship that helped lead to using DEBT SETTLEMENT to eliminate your debts!
Once you have completed the Financial Worksheet, if your LIABILITES were greater than your ASSETS at the time of the settlement, then you were 'INSOLVENT".
NEXT...COMPLETE IRS FORM 982
We have included Form 982 with the FREE 1099-C PACKET. If you haven't requested the FREE DOWNLOAD, click on the button above.
Follow the instructions to compete the Form 982. It's so simple.
It is a good idea to include a short explanation of your financial situation.
Just a brief note (can be handwritten, but make it legible).
So now you should have completed:
- Financial Worksheet showing your were insolvent at the time of the debt forgiveness
- Form 982
- Brief note of your financial circumstances at the time
Make a copy for your records and then send all of the above along with your tax return to the IRS. You should send via Priority Mail so that you will have proof that the IRS received it, but don't ask for a signature, as this may delay the process. You can track delivery online.
Don't be surprised if your accountant and/or tax preparer is not aware or does not know how to complete the Form 982. Just download and print the FREE 1099-C Packet for them.
If you have alreadly filed your tax return and before you received the 1099-C, you will need to file an amended form along with the 982 and other documents. You should probably seek the help of a qualified tax specialist for this.
Hope this helps!