Consumers Have To Pay Taxes On Canceled Debt
Many consumers have had their credit card debt forgiven, for one reason or another. Despite the relief that would come with that, they still have to pay taxes on the debt.
Credit card companies will send out tax form 1099-C to cardholders if their forgiven debt amounts to $600 or more, according to Darrin Mish, a tax attorney from Tampa, Florida.
The Internal Revenue Service reported that over 1.9 million people filled out a 1099-C form in 2008, compared to less than 1 million in 2003, Mish said. Early projections say that 2011 numbers will be approximately 2.8 million.
Some debts, including certain student loans that are forgiven, are considered tax free, but credit card debt is not, according to Mish. If a person cannot pay the fees on the forgiven debt, just like they could not pay the original funds owed in the first place, there are options. Either the debtor could borrow more from a lender, or they can enter into a tax payment plan with the IRS.
The best advice is to try and avoid debt, if at all possible. If that is not possible, try to pay it off as quickly as is financially feasible.
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