If you’re facing tax headaches because you received a 1099-C for cancellation of debt income, you are not alone. An estimated 6.3 million of those forms have gone out to taxpayers and they are creating all sorts of confusion. It’s a big mess, and the IRS isn’t exactly handing taxpayers a broom. If you’re among the millions struggling with these forms, take a look at the resources we’ve put together for you here.
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If you received a 1099-C, then read this in depth article: 1099-C In The Mail? How to Avoid Taxes on Cancelled Debt which will explain how you may be able to avoid paying taxes on this “income.”
If you received a 1099-A, most likely due to a foreclosure, then you’ll want to read 1099-A In The Mail? How to Avoid Taxes on Cancelled Debt. A related article, More Confusion Over the 1099-C talks about whether Home Affordable Foreclosure Alternatives payments are taxable, and what happens when private mortgage insurance (PMI) is involved in cancelled debt.
If, like many of our readers, you have received a 1099-C for a very old debt, then my article 1099-C: The Worst Tax Mess of the Year? is for you.
I would be remiss if I didn’t warn you that the mess these lenders are creating can also increase your chances of being audited. I explain why in 1099-C Wrong? Taxpayer May Pay With An Audit.
And finally, if you believe a 1099-C form you received is wrong, or too old, you’ll want to make sure you read Tax Help: How to Dispute a 1099-C as well as my more recent article, What to Do If You Get a 1099-C for an Old Debt.
Thanks so much to our readers who have shared their questions, comments and frustrations. I wish we had all the answers, but we don’t. It’s clearly something the IRS needs to fix, and fast. If you’re facing financial problems or hardships due to a 1099-C, or if you can’t get straight answers to your questions, I’d encourage you to contact your elected officials in Washington and let them know what’s going on.
And take heart: maybe it won’t be as bad as you think. One of our readers who first wrote in “freaking out” when she got one of these forms now writes:
Just want you to know I made out okay with my taxes regarding the 1099C…….not as bad as I thought it was going to be……so I will pay off what I owe the IRS………at least I will be able to eat in the following months……….I have certainly learned a lesson in this experience. Never want to have this happen again.
Hopefully you’ll find a way to put this behind you as well, without resorting to an all Ramen Noodle and peanut butter diet.
Image: Linzi Clark, via Flickr
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