What is a 1099-C?

If you or a Debt Settlement Company has helped you settle a debt for less than the balance, the difference is reported to the IRS by the original creditor as a loss.

The IRS looks at this settled or "forgiven" amount as if the money was returned to you, even though it wasn't. The IRS is thinking that you will have to include this amount as additional income and therefore pay additional tax on it!

Sadly, most tax preparers and/or accountants are not aware of how to EXCLUDE a settled debt from being included as additional income.

HERE'S WHAT YOU NEE TO DO IF YOU RECEIVE A 1099-C:

According to the IRS, the amount of forgiveness (for the sake of this article, we are talking about unsecured debt) IS EXCLUDED if at the TIME OF FORGIVENESS, you were INSOLVENT.

INSOLVENT means that your liabilities are more than your assets or in other words, you have a negative net worth.

Sounds terrible, but in reality, in this case, it is good for you.

Let's say that when you list all of your assets:

• Home equity
• Net value or current value of your car
• Home items (furniture, tools, stuff)
• Savings accounts (stocks, bonds, yeah...right!)

Now offset that by all of your debt:

• Mortgage
• Car payment
• Student Loan(s)
• Medical Bills
• Credit Cards
• Personal Loans
• Equity Line of Credit

Most likely, your net worth (Assets - liabilities) will be negative.

Using IRS Form 982, you will check the box in Part 1, on line 1-b that states Discharge of indebtedness to the extent of insolvency.

It is also helpful to write a brief (I said brief...don't say too much) explaining why you were insolvent.

Attach this with the Asset-liabilities Worksheet together with the Form 982 and send in with your tax return.

That should do it!  If you would like a more complete explanation of how the IRS treats forgiven debt and insolvency, click here.

Do you still have debts that need to be settled? We can help! Click the link -->> FREE DEBT ELIMINATION SUMMARY or give us a call!

1-877-492-4109

photo by: alancleaver_2000