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Five Ways Not To Pay Tax on 1099c Forgiveness of Debt

1099c Cancellation Debt

1099c Cancellation Debt

1099-c What to Do and What Does It Mean?

What are the 1099c filing requirements?

There are Five Ways Not To Pay Tax on 1099c Forgiveness of Debt

Every January with the deadline for filing tax returns just around the corner, W-2s and 1099s start showing up in your mailbox. This year, a new type of 1099 may show up unexpectedly. If any debts were discharged in bankruptcy or cancelled by debt settlement last year, banks and other financial institutions are required to report the cancellation of debt to the IRS and provide you with a 1099c.

Form 1099c declares forgiveness of debt as income for tax purposes. Where the debt has been discharged in bankruptcy, 1099C debt is not reportable as income. The debtor/taxpayer must file form 982. That form and instructions are available at www.IRS.gov. If you work with a tax preparer, take along a copy of your bankruptcy discharge and verify that the 982 is part of the return prepared for you.

Below are the Five Ways Not To Pay Tax on 1099c Forgiveness of Debt:

  1. The debt cancellation occurred as the result of a bankruptcy;
  2. The debt cancellation occurred when you were insolvent;
  3. The indebtedness cancelled was qualified farm indebtedness;
  4. In the case of a taxpayer other than a C corporation, the indebtedness cancelled was qualified real property business indebtedness; or
  5. The indebtedness cancelled was qualified principal residence indebtedness which is discharged before January 1, 2012.

1099c Filing Requirements:

Debt cancellation must be reported on IRS Form 982 and filed with your tax return. If you are preparing your taxes yourself, the IRS has detailed instructions on completing Form 982 on their website.

by Bradley Covey

Aurora Illinois Bankruptcy Attorney Bradley Covey will help explain your bankruptcy options including filing chapter 7 and chapter 13.
2000 W. Galena Blvd., Suite 203
Aurora, IL
60506
US
Phone: (630) 907-9811
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About Bradley Covey

Bradley Covey is an Illinois bankruptcy attorney helping individuals and businesses file Chapter 7 bankruptcy and Chapter 13 bankruptcy in Kane County, DuPage County, Kendall County and Will County, Illinois. Brad attended SIU undergrad and NIU College of Law. Brad served in the military at Ft. Stewart, Georgia and Ft. Sill, Ok as a Field Artillery Officer. Brad later served in the Illinois National Guard as a Major.