| The last three years have seen many changes on the | | | | this mean specifically? It means that the IRS considers |
| financial front. While most people focus on the | | | | your $10,000 credit card savings to actually be income |
| mortgage market, banks have had problems in other | | | | to you. Yes, you need to pay income tax on it. |
| areas. One has resulted in massive write-offs in the | | | | Surprise! |
| credit card market. This raises a host of tax issues for | | | | The first clue you have a problem should be when you |
| those who saw their debt cut. | | | | receive a 1099 from the various credit card holders. |
| Everything was going okay. You had a solid job, a | | | | That being said, you almost assuredly will not get one |
| home, and...a load of debt. Your mortgage was one | | | | from all the companies that cut your debt. This might |
| thing, but you owed a whopping $17,000 on credit | | | | lead you to believe you don't need to claim the |
| cards. Then the Great Recession hit and you were in | | | | canceled debt from those companies as income. This |
| trouble. Your salary was cut and suddenly you couldn't | | | | is a trap. Don't fall for it. The credit card companies are |
| meet the bills. You called the credit card companies | | | | writing off huge amounts of money to huge numbers |
| and negotiated a reduction in what you owed to | | | | of borrowers. Issuing 1099s is pretty low on their "to |
| $7,000. That cut your monthly payments and really | | | | do" lists. Although they may lag in getting a 1099 to you, |
| made a difference. | | | | they are almost assuredly sending them off to the IRS. |
| Now are you ready for some really bad news? The | | | | If you don't claim the debt as income, your tax return |
| tax code in the United States is so out of whack with | | | | will be flagged and an audit will occur. |
| reality that sometimes a reduction is considered a gain. | | | | Cutting your credit card debt is a good thing. Just |
| In this case, the reduction of the debt by $10,000 | | | | make sure any canceled debt is counted as income |
| resulted in a gain from a tax perspective. What does | | | | on your tax return. |