Settling your debt might seem like a win-win solution to past spending problems.
Your debt is erased at a discount; the lender gets some of its money back.
But there’s something important to keep in mind when settling debt: your taxes.
But CreditCards.com points out another reason to be wary: the forgiven amount of your debt could be taxable.
The U.S. Internal Revenue Service considers forgiven or canceled debt as income.
Taxpayers must report that portion of forgiven debt as “income” on their federal income tax returns.
Unfortunately, many taxpayers just ignore this notice.
And, as the post explains, this puts you at risk for IRS audits and penalties.
If you’re in the process of settling debt, you should consider this tax implication before you settle.
For more information, check out the full post.
1099-C surprise: IRS tax follows canceled debt| CreditCards.com
Photo byJ Brew.
