After some recent tweaking in the US tax codes, there is one more thing you need to add to your income section when filing for tax – debt relief. If you have managed to bring a bit of financial stability to your life by getting your lenders to settle your debts, you can still not get away from the tax authorities. On all forgiven taxes that amount up to $600 or more, you will be required to pay tax debt relief since they will become a part of your income.
IRS made the changes pertaining to the fact that debts are non-taxable because they are supposed to be returned. Forgiven debts, on the other hand, are used by the individuals for personal use but are not returned back, playing the same role as income. With debt relief making an enhancement to your finances by decreasing your liabilities, your forgiven debts become a part of your income, making you eligible to pay tax debt relief.
Since you won’t likely have this money with you in the form of cash, rather simply on paper, you are more likely to think of tax debt relief as an unjustified addition to your tax returns. In reality, this addition is completely justified since the amount of debt that was forgiven was actually used by you for personal consumption without having any obligation of repayment anymore. Consider having a debt of $2,000 on your credit card, of which you only pay back $1,000. The remaining $1,000 is used by you and not the lender, hence becoming a part of your income instead of his.
If you think you can hide this debt from the IRS, you have got one more thing wrong. When your creditor writes off your debt, a copy of the records of this cancellation is sent to the IRS by them on Form 1099-C, similar to a copy that you will receive. If you have had debt cancelled in recent years, you must have received this form in your mail showing the original and forgiven amount of debt. Courtesy to these forms, the IRS is well-aware of the debt relief you must have gained so you should be careful when you file your tax debt relief.
A major reason why many people don’t report tax debt relief is because they are not aware that forgiven debts need to be reported. Coming as a relief to their financial problems, these debt cancellations are a reason for rejoicing among people and seldom pay attention to the details provided on the form. If you collect information before you start filing for your taxes, you can come to know about a lot of things that need to be included, which you would never think of on your own.
There are certain exemptions regarding the types of debts that can be taxed. There are still certain types of mortgage debt that can be excluded from the tax debt relief in case of full or partial debt cancellation. However, this only includes mortgages that are associated with your primary residence while excluding all the mortgages you have taken on second houses. If any mortgage on your main house is cancelled, you are not required to include it as an income in your tax returns. If the mortgage cancelled was on any other building under your name, the amount of debt relief will be included in the tax debt relief.
If you need more information about our accounting and tax services, please contact us at 407-502-2400. Freedomtax Accounting’s staff has been providing honest accounting services and tax services for 15 years. Our Orlando accounting firm has its main offices in Kissimmee, FL. We offer our services nationwide, but mainly in the Central Florida market to areas like Orlando, South Orlando, Kissimmee, St. Cloud, Poinciana, and Hunters Creek, FL. Our tax accountants and IRS enrolled agents (irs ea) specialize in corporate accounting and bookkeeping, tax services, tax preparation, back taxes help, tax debt relief, tax resolution, tax planning, itin numbers, incorporations, and non profit 501c3 tax exempt status applications.