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Guest · Posted: Sat Jan 05, 2008 11:00 am Subject: I have a question about taxes.

I settled one of my cc in 2006 but have three others that I have yet to settle. All of them have been charged off. My question is - will I have to pay taxes on the charged off amount of all 4 of my cards or just the difference on the settled card? Thanks

Posted: Sat Jan 05, 2008 3:40 pm Subject:

Anything over $600 is usually reported to the IRS and you will have to pay taxes on the amount they cleared from your account. This is only done once you have settled the account and made your payment, as at the time of charge off the creditor can still try and collect. So you should only receive one form for the account you settled. The others will apply once you settle them.

Guest · Posted: Sat Jan 05, 2008 3:48 pm Subject:

That is what I thought. Thanks for your help. I guess I am just so stressed over this entire situation and thinking about it way too much. I have been thinking and worrying so much that I can not wait to have this over with.

Posted: Sat Jan 05, 2008 4:09 pm Subject:

Glad to help, also don't forgot that you may be able to claim insolvent on your taxes if your liabilities are more than your assets, IRS form 982 - make sure your tell your tax adviser to look in to this. If you qualify you won't have to pay any taxes on the amount you receive on the 1099 form.

good luck! it takes some time and patience but it's worth it to get it done and over with.

Posted: Sat Jan 05, 2008 6:33 pm Subject:

jb2007 is partially right, but You do not have to pay taxes on on forgiven debt until it is actually FORGIVEN ( not when i is charged off), in which case the creditor or collection agency will issue you a 1099C. Just because and account has been charged off, does not mean it is forgiven and that you have to pay taxes on that amount as income.

For example you had and account with XYZ corp with a balance of $1300. after a period of time in which they didn't receive any payments, they charged your account off (and accounting technicality, it really doesn't mean much to you yet except a black mark on your credit report. XYZ Corp send your account out to Low Life Collections (LLC). When they initially contact you LLC wants the whole $1500.00. Over time you work out a settlement with LLC to repay $600 dollars in exchange for the remaining balance being forgiven.

LLC will then issue you a 1099C for the $700 forgiven balance as written off as bad debt. Under federal law, you must claim that forgiven $700 as income on your taxes that year.

Now to the contrary, I you had settled that same account for $1000, then the forgiven amount was less than $600, and does not need to be claimed as income.

The important thing to remember is that just because an account is charged off by the original creditor, does not mean the debt has been forgiven!

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