Do debt settlements have an effect on next years tax return, primarily credit card debt?

Question

If you have elect to not pay all the interest on a credit card and are given a settment offer with the difference being over $600, does that count as income? Does it then have a negative effect on next years tax returns??

Answer 1

Technically the amount the credit card forgives is income to you for tax purposes. They will issue you a Form 1099 at the end of the year and you'll have to report the amount on the Form as income on your tax return. Even if you are in the highest tax bracket (35%) paying the tax on the income (say 35% on $600 = 210) is better than having to have paid the full amount back ($600 in this example)!

Answer 2

Anytime debt is forgive, even though bankruptcy, the amount forgiven is considered income for Federal tax purposes. If you are insolvent at the time the debt is forgiven, the 'income' can be excluded from taxable income. Insolvent means your total debt ins more than your total assets. Waiving the interest may or may not count as forgiving debt. You may need to consult an attorney about that point.

Answer 3

Yes, it does have an effect. It counts as income for the purpose of income tax returns. My brother recently went through it, and he received a tax form form the credit card company for the difference he negotiated.

Answer 4

you have already got approximately $12,500 in reductions? pay off that credit card debt all the way down to $0. Why did you ask this? You knew that became into ultimate. credit card balances basically injury your credit. you may choose a house sometime. in case you employ a card on your destiny cost some thing like gasoline or food, and pay in finished each and each month. This avoids interest and develops astounding credit (with time). * next time you may ask how those credit card balances are hurting your score. And the greater helpful your score, the greater helpful fees of interest you get on a house loan. credit enjoying cards are revolving credit (would be very destructive). automobile loans and student loans are installment loans (not undesirable for credit).

Answer 5

If you had declared bankruptcy, no tax would be owed.

You can escape taxation on the cancelled debt if you can show you were insolvent to the extent of the cancelled debt. In other words, if you have $10,000 in cancelled debt, you have to show that your net worth is -$10,000. Then you pay no tax on the cancelled debt.

You may receive a 1099C from the lender showing the amount of the cancelled debt. File Form 982 with your tax return, showing the amount of your insolvency, to exclude all or part of the cancelled debt.

The amount of the cancelled debt that you cannot exclude due to bankruptcy or insolvency must be included on Line 21 "Other income" of Form 1040. It will be added to your other income and taxed at ordinary tax rates.