The letter says that if they discharge more than $600 they are required to report to IRS and there might be an impact on my taxes..... what is this all about?
2007-11-27 01:40:34 · 6 answers · asked by Tiny Jr. 3 in Business & Finance ➔ Taxes ➔ United States
They are willing to forgive $5000 .... should I just let it go and go bankrupt... I am planning to anyway.... file bankruptcy ... that is.... I bought a trailer and want to return it but they say this might be better but then again maybe I would be better off just returning it and filing....what say you intelligent people ... thank you for your help and input....
2007-11-27 01:58:04 · update #1
It is to a Bank and they are collecting in house ...
2007-11-27 02:00:51 · update #2
Taxes are the least of your worries. They're going to report it to the credit beurau as a charge-off.
Make sure the credit collection company lists it as PAID on your credit report. Write a disclaimer on the check or on the form that you write your credit card number on that says...
"Acceptance of this payment frees me from any debt obligation to you or the original creditor. Acceptance of this payment also obligates you to list the item on my credit report as paid, if you do not agree you are not permitted to accept this payment".
Something like that. Because some companies will take your money and it will still show unpaid. Now it will still show as a charged off bad debt on your credit report, but it will at least show paid.
Now....about taxes....something that's only $600 isn't going to have a major impact on your credit. Especially if you have a good tax guy. You won't even notice the smaller refund amount.
2007-11-27 01:50:59 · answer #1 · answered by Anonymous · 0⤊ 2⤋
Sounds like the same rules as a 1099 - when a organization or person pays an individual or a company over $600 in one calender year that organization must file a W-9 and then a 1099 with the IRS reporting the income.
If you owe them that $600 and now they are letting it go it is income that you have once spent and never actually paid for therefore it is income to you this year in the IRS' eyes.
Basically it would just add $600 to your total yearly taxable income which should have little effect on your income tax.
Hope this helps!
2007-11-27 09:45:32 · answer #2 · answered by Shawn B 2 · 0⤊ 1⤋
forgiveness of debt is taxable income to the person whose debt is forgiven.
however, the gross amount they're claiming is probably far higher than the amount you actually owed and the various charges that were added on [non-interest charges like late fees, etc.] probably aren't debt as far as IRS is concerned because no firm actually reported them as income and thus no firm gets an income tax deduction for them.
if there is no deduction for someone else, there is no income to you.
***
since you can't know what amounts were taken as a deduction, my opinion would be that any forgiveness of charges and fees is certainly not taxable and I'd also claim that interest after the date the account was sold, even if forgiven, isn't taxable as no one reported it as income because they never expected to collect it.
PLUS, the original bank or firm probably charged off the interest they'd accrued on the account up to the point they sold it to the collection agency [for pennies on the dollar, too] so they didn't report that as income and thus they didn't get a deduction and so you don't have taxable income from the forgiven interest before the sale either.
take the deal. argue with the IRS later along the lines indicated.
2007-11-27 09:55:12 · answer #3 · answered by Spock (rhp) 7 · 0⤊ 2⤋
I don't know about that, but I did a settlement once for more than 600 buck. It showed on my credit as a charge off and I eventually got it removed from my credit because there was no response from the creditor. If it affected my taxes, it hasn't come about as of yet... :)
2007-11-27 09:44:49 · answer #4 · answered by Gail R 4 · 0⤊ 0⤋
Basically, it is income. You got free money that was untaxed and the IRS will tax you on it.
Think about it. You use a card to charge $2000 and don't pay it back. You just got $2000 for free (aside from the damage to your credit and any liens).
2007-11-27 09:43:07 · answer #5 · answered by mark 7 · 2⤊ 0⤋
They will send you a 1099-C for the cancellation of debt, and that will be taxable income to you. There are some exceptions that involve being insolvent at the time.
2007-11-27 10:46:04 · answer #6 · answered by Judy 7 · 3⤊ 0⤋