If you’re under considerable credit card debt, then you might as well have considered debt forgiveness with time. Now, the laws that are associated with credit card debt forgiveness aren’t really a smooth slope to navigate. Most having credit card debt problems think on the lines of settling debt or talk to the lenders so that the debt can be settled. Now, when you settle a debt, then there are instances wherein there may or may not be any tax consequences that are associated with the process. Remember, there are always various circumstances that can actually go on to help you determine whether or not you’ve got any tax obligations to fulfill after you’ve been through debt forgiveness.
The debt settlement factor
Basically, you need to contact your creditor and make the required arrangements when it comes to settling your debt as in you’ll be paying less than your outstanding balance. Now, the amount that you’ll be ultimately settling for completely depends on your negotiating skills as well as what your creditor would be willing to accept.
The 1099-C form
Now, once you’ve managed to come to a settlement deal, then your creditor will be sending you a cancellation of debt form, that’s the 1099-C one. This particular form basically instructs you to report the settled debt amount as taxable income and this should be done when you’re filing your taxes. Moreover, you need to report the difference between your outstanding debt and what’s the amount you’ve ultimately settled for.
The exceptions involved
There are certain situations wherein you’re not really required to report your settled debt as taxable income. You’ll obviously be excluded from this tax rule if you’re granted relief through bankruptcy. There’s another exception like in situations that center on the status of your assets and liabilities. The IRS says that in case your liabilities happen to exceed your assets, then in such a case your credit card debt might not necessarily be reported as taxable income. Now, it’s advisable that you take your 1099-C tax forms to a professional before you begin estimating or calculating your insolvency.
The concept of bad debt
Basically debt forgiveness is one of those things that can help the credit companies to clear up their books. This is one of the major reasons why the credit card companies write off credit card debt quite often. In fact, the credit card companies are trying to collect whatever they can on the debts that have gone bad. Here you can find out qualified company for tax relief.
The credit score factor
It’s true that you’ll be gaining a substantial amount of relief in case your credit card debt is forgiven. However, there’s a flipside involved as well. There are chances of your credit score getting reduced and it depends on your situation completely that’ll determine how much your credit score will get reduced by. This can actually prove to be a deterrent as far as getting credit in future is concerned.
Keep in mind the above facts when considering debt forgiveness and then move forward.
