In today’s economic times many people have some amount of credit card debt.
Some people who have credit card debts also have mortgages and other large debts as well. With so many debts, there are times when those credit card payments fall behind and eventually you are simply unable to pay.
It is at these times when settling a debt with a credit card company for less than you actually owe makes good sense. Quite a few credit card companies are open to making a deal because they at least recover part of the debt. If no settlement is reached they know they face losing even more money. So a debt settlement seems in everyone’s best interest.
Before you accept that settlement deal with the credit card company to lower your obligation, you should know that the amount of debt that they reduce on your total debt is considered as income by the IRS and if the forgiven portion of the debt is more than $600.00 you will be taxed. The credit card company has to report the amount of debt that they reduced to the IRS. They also will send you a notice. However, most people do not know what this notice is and so they don’t claim the forgiven amount of the debt on their income tax. Failure to do so can result in an audit and fines levied on you.
If you are thinking of reducing your credit card debt by getting the credit card company to settle on a lesser amount, it would be advisable to check with your tax preparer as to what your obligation to the IRS would be on the amount that the credit card company is prepared to forego.
In a short, there is no Tax Relief on that credit card debt that your credit card company is prepared to forego, but it is a tax liability for you, a liability you need to be prepared for.
No Comments