I owed @ $50,000 to a creditor and I settled it for $12,600 saving @$37k. I earn only @$32K. I was told that I will have to pay taxes on the settled debt. Is this true and how much will my taxes be on the settlement?
Consult a tax accountant or attorney, tax laws vary from place to place, and anyone that can give you a dollar amount based on the information provided is BSing you.
I think someone is giving you some bad advice. Tax is based on income or earnings and not on debt payments. Or is there part of this you are not telling. Did you take the money to pay the debt from some sort of tax sheltered investment or retirement plan? If that was the case then that money could be considered income and would be taxed.
The search for people who can answer your question continues for as long as needed - until you find the answer you were looking for.
When an answer is posted by someone who was invited (byYedda or by yourself) to answer your question, their answer is marked with a yellow "invited by Yedda".
To be invited to answer other people's questions in your areas of knowledge and interest, be sure to list your favorite topics:
» My Settings › My Topics.
Of course, the more helpful your answers are, the more likely you are to be invited to future questions...
Reliable answers to your credit questions.
The IRS considers forgiven debt as taxable income. The creditor will likely send you a 1099 next year showing the forgiven amount as income. However, if you can demonstrate that you were "insolvent" at the time you settled, then you will not have to pay income taxes on the settled debt. Because this is a large amount, you would be wise to consult a tax advisor now (not next year) to help you with the calculation and your options.
The Form involved is Form 982. You can learn more at http://www.irs.gov/pub/irs-pdf/f982.pdf The tax professionals I work with are telling me that their clients are waiting too long to get help with this form. You need to get advice at the time you settle. Please contact a tax professional.
Got an answer for Nubia100? Would you like to comment on the posted answers, or vote for the one which you think is the best?
Sign up for a free account, or sign in (if you're already a member).
Other people asked questions on similar topics, check out the answers they received:
