What Restructuring Your Debt Can Mean for Your Tax Return

As the economy continues to struggle, many Americans are negotiating with their creditors to make lower payments on their debts. As a result, the number of taxpayers receiving 1099-C forms - cancelled debt tax notices - is up. The IRS requires that creditors who accept less than the amount owed on outstanding debts send a 1099-C debt cancellation to the IRS and the debtor. Many taxpayers who receive these notices may not be aware that they qualify to avoid paying taxes on the canceled debt. Tax experts from the Pennsylvania Institute of Certified Public Accountants (PICPA) can help answer these questions:

  • Is the cancelled debt counted as income on your tax return?
  • What are the rules for reporting the debt and taxes?
  • Why and how should you check the accuracy of the 1099-C form?

Many who qualify to avoid paying taxes on cancelled debt fail to do so. Taking advantage of this tax strategy can make a big difference, especially for low-income families. A CPA can help. To set up an interview with a local CPA, contact Kathleen Miller at 215-972-6188 or kmiller@picpa.org.

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