This is Denise. I'm here with Dan Pillow for today's tax help minute. So Dan, we've got lots of people who are in financial crisis through bankruptcy or credit card debt they can't pay. What's gonna happen to that debt? Well, what happens Denise is anytime you go through a debt forgiveness situation, whether it's a bankruptcy, home foreclosure, millions of people have had short sales here in the last five or six years. They've been millions of people with cars repossessed with credit card debt that's been negotiated. What happens is these people get blindsided in a situation like this. Of course, this occurs at the worst possible time in their life. They don't have the money to pay their bills or they wouldn't have been in financial trouble in the first place, right? So now what happens as a result? The creditor that forgives the debt is going to report debt forgiveness income to the IRS. So now, on top of all the other financial problems that these people have, the IRS comes along behind all that and expects these people to pay taxes on phantom income. Wow, that's amazing. So for people that get the 1099-Cs, how is that different from the other 1099 that they may receive if they were, let's say, a newspaper delivery person? Sure. Well, the typical 1099 that you get is a report of income that you earn for the ance of services. And people understand that if you go out and do any kind of services for pay and you get that pay, that is reported to the IRS on a regular 1099. But the 1099-C is specifically a report of debt cancellation income. The "C" stands for cancellation of debt. So what the creditor is saying to the IRS is, "We...
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1099-c exceptions Form: What You Should Know
The amount you receive for a specific event or series of events. Mar 28, 2024 — In general, Form 1099-C will not be effective (and may be subject to penalties) for any debt that is not taxable or that is taxable only at a reduced rate. In general, Form 1099-C will not be effective (and may be subject to penalties) for any debt that is not taxable or that is taxable only at a reduced rate. Feb 28, 2024 — If the canceled debt is not taxable, you will need to file Form 1099-C. See Cancellation and Debt Cancellation under Cancelled Debts at the Taxpayer's Source If there is no amount listed on the canceled check, you would not receive cash or other taxable items. However, items that are included in gross income with the money received for the canceled check are taxable. Debts paid through check or money order with no additional information listed on them are not considered canceled checks. So, for example, if you pay your credit card bill by check, the money you received for your canceled check is taxable and must be included in gross income. Cancelled checks are taxable to the original payee, as they are usually before their cancellation is recorded. Debts canceled as gifts aren't taxable to you, but you must include the canceled check in your income. Canceled Check Tax Deduction Taxpayers must include in gross income the amount of any canceled checks received as gifts or bequests. Cancellation of a Check as a Gift Taxpayers must also treat canceled checks as gifts for federal income tax purposes. Cancellation of a check is treated as part of the gift. Note: Cancellation of a check doesn't make the check an illegal gift. But if you do not include the canceled check in your income for tax purposes, you must include the amount it is now worth as an adjustment to your income. See the discussion of Cancellation of Tax on Cancelled Checks under Cancelled Debts at the Taxpayer's Source, later. As a result, if you have canceled a check and the check is returned or refunded to you, you need to include the difference in your income within 5 years. This 5-year period starts over from the date the check was canceled.
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