What You Didn't Know About Life After Credit Card Debt

For many Americans, getting out from under credit card debt is something they can only dream about. Unfortunately, though, if and when they finally do pay off their credit card debt, they sometimes have an ugly little surprise waiting for them.

That ugly “surprise” often comes in the form of a...well...form, known as a 1099-C. See, whenever debt is forgiven or canceled, that is considered to be “income,” so if you end up settling your debt for less than you actually owed, the remainder would be considered income. You’ll know if this applies to you because you’ll receive that dreaded 1099-C in the mail.

If you do receive one of these forms, it’s time to grin and bear it and to handle it correctly to avoid further trouble. First things first, don’t toss that form out! A lot of people do, not realizing that it applies to them. If you know you’ve recently settled some debt, expect the form and be on the lookout for it.

When the form does come...and it definitely will...make sure you actually are responsible for including the money as income. There are some loopholes. If the amount is less than $600, for example, it doesn’t count, or if the debt was canceled as part of bankruptcy or insolvency, it doesn’t count. You can learn about other exceptions from the IRS, or, even better yet, by consulting a professional tax advisor.

If you’re not lucky enough to have one of these loopholes apply to you, remember the amount and record it as “other income” when you file your taxes or tell your tax advisor or preparer to do so. This form may not be welcome in your life, but if you take care of it appropriately, at least you’ll have one less thing to worry about come tax time! #1099-c

Friday, November 20, 2015