Do I have to pay income taxes on debt settlement?
I am contemplating using a debt settlement company to take care of credit cards and a medical bill. I heard that I might have to pay income tax on the saved amount of the negotiated debt.The IRS considers $600 or more of forgiven debt as taxable income, but in some circumstances you may have to pay income tax on canceled debt that falls below $600. There are some exceptions--for example, if you’re insolvent at the time your debt is settled then you don’t have to report the forgiven debt as taxable income--but those exceptions have their own exceptions. Don’t make any final assumptions on your tax consequences until you speak with your attorney and look at an updated 1099-C form.
Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.