profitable

When I prepared taxes for one lady several years ago, she was in need of getting relief from having some credit card debt removed. She received from the credit card companies some 1099-Cs. She was worried because the forgiven debt was going to look like income.

“What should I do?” she asked.

“Taxpayers may qualify for one of several exclusions that allow them to reduce taxable income from canceled debts.” I said. ” If the exclusions apply, they must file an IRS form 982 in addition to the 1099-C. The exclusions include debts discharged during bankruptcy and debts of consumers who are insolvent (meaning their liabilities exceed their assets) prior to the cancellation of the debt. However, the exclusion applies only up to the amount by which consumers are insolvent.”

“What does that mean?”

“It means in your case that you don’t have to worry because you had $3,000 in debts that were forgiven and liabilities exceeded assets by $1,800, then the $1,800 would be excluded as income. “The remaining $1,200 would be reported under other income.”

When everything settled for that particular year after reviewing everything she presented to me, she ended up getting a refund.

“I’m seeing a therapist, Kim.” she said looking at me really really intently. “Do you think I should continue it?”

“If you feel you are getting value from it, sure.”

When she left that year she said, “I am going to keep my eye on you, Kim.”

Yikes. Tax preparer stalkers! “Thanks!”

She came back in better financial shape having listened to me over the next few years and is in a happy relationship.

The moral of this story? There is no moral, just keep me away from people who get extra creepy and say they want to keep an eye on me. Well, that, and it pays to be current in your tax knowledge.

Getting forgiveness for credit card debt is great but remember that it will be reported as income from the credit card company so you should review with a tax professional what exactly your tax liability (if any) might be at tax time. Try to do it early so you can have money to pay for the taxes if you owe or so you can gleefully anticipate a refund.

And make sure that you don’t tell your tax pro that you are going to stalk him or her!

Part of all my book proceeds go to research finding a cure for Rett Syndrom and reversal of symptoms.

Kim Greenblatt

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You are reading from Kim Greenblatt’s blog, profitable on tax preparation, credit card debt, and people who say they are watching you!