What about the 1099 at tax time if you do debt settlement?

I know I don't need to give this disclaimer, but I'm going to anyway: I am not a CPA, and cannot give tax advice. For tax advice, you should seek the help of a CPA in your state.

Now that that's out of the way, let's move on.

You will get a 1099-C in most cases with a settlement. However, in my experience, most people who go through debt settlement are insolvent, meaning their liabilities outweigh their assets (your home and car are not assets if you are still paying them off, FYI). You can be exempt from paying some or all of the taxes depending on the dollar amount to which you are insolvent.

Example:
You settle $10,000 for $4,000, meaning $6,000 of debt has been 'forgiven', and will be treated as taxable income.

Your assets total $6,000, however your liabilities total $15,000. The difference is the amount by which you are insolvent, which is $9,000. Up to $9,000 of forgiven debt will be exempted from the tax, which in this example completely covers the $6,000 that you were going to be taxed on.

In my opinion, someone going through settlement is completely or nearly completely exempt from the tax. If you are not exempt at all, then you were not insolvent, and I would question why you are having to do a settlement program in the first place, when you could just liquidate assets to get rid of the debt.

Most people, however, do not have or have run out of assets to liquidate when going into a settlement program.

Never heard of Mountain View Financial Group. I do not see them listed as TASC members, and I do not know how to search USOBA's site for members, so you may have to call them. If they are not a member of either I'd give them a thumbs down for not even trying [insert the smiley that's laughing here because I don't know how to do them]

Hope this helps!

nicely explained

The law is there to get the people who have the means to pay their debt but are just being sly. I'm doing Settlement and I am insolvent by like ,100,000. If you have the money just pay it off. If you are buried - don't worry about it!!

BLL's comment about what the law is really in place for is spot-on.

If we are burried and when you say "dont worry about it", when tax day comes do we just not include the 1099 we recieve from the settled CC? I normally do my own taxes so this April will be a challenge for me.

file a form 982 with your tax return and attach it to your 1099-C. Make a spreadsheet listing your Assets and Liabilites at the time of your settlement in which your 1099 is for. You should have more liabilities (i.e. debt) than your assets, especially if you are doing debt settlement. if so, then you are basically isolvent and don't have to pay taxes on the 1099 "earnings"

one other thing....just make sure your insolvency exceeds the cancelled debt amount. i found a good website that explains it all, but can't post links here...

What about 401 ks are they considered assets?

What about 401 ks are they considered assets?

dave08: That's actually a really good question I'd like to see answered. Any CPAs hanging around here wanna step in on this? Or if anyone has a friend that is a CPA call them up and ask.

Backed out of this after signing papers. Only 3 days to change mine instead of 30. (Bad) They want me to pay them over $1,000 and they won't pay my creditors for a year. This really bothered me. After I pay them, they could just disappear. TASC does not know them. I will pay my bills the best I can, after all, I made them. I hope this helps a little.

YOu can speak to your creditors and they will do a settlement with you. One called me and offered, I did not even ask. They dropped 15,000 in exchange for 3K over a 4 month period. I will gladly pay the income tax on 15K, to have this monkey of my back. I will make payments.....but in the long run, they helped me with just the stress if not the cash.

YOu can speak to your creditors and they will do a settlement with you. One called me and offered, I did not even ask. They dropped 15,000 in exchange for 3K over a 4 month period. I will gladly pay the income tax on 15K, to have this monkey of my back. I will make payments.....but in the long run, they helped me with just the stress if not the cash.

When you sign up for debt settlement it is a settlement program, you have to build funds for settlement...They DON'T pay your bills for you.
Seems that maybe you signed a contract before reading it...If you did, then you are responsible for paying for the service you signed up for. Would you buy a car and if you weren't satisfied with it after a few months tell the bank that you aren't going to pay for it? Just a thought...

nice thought it is gini. :roll:

What is considered assets? what about the furniture and contents that are insured by insurance in your home?

furniture and contents of your home are assets that can be listed as "personal property" and generally lump summed....but certainly count towards net worth.