Credit Card charge offs

[Whatamimissing]

What is the name of your state?Georgia
I promise this is a real life question, not homework.
A credit card company charges off an account and the balance is $2800. Fees and interest from the collection agency(ies) bring the balance up to $3600. Any amount over $600 that is charged off/discounted/forgiven is treated as income. If $2201 is paid to settle the account, is tax liability avoided (2800-2201=599)?

 

[Snipes5]

Who told you that "any amount over $600" that is charged off is income?

That's wrong. Any amount over $1 that is charged off is income, for which you may receive a form 1099. If the amount is over $600 they must send you a 1099. See the difference?

Snipes

 

[MomIsWorried]

Snipes~

Can you give me a link to that information? Not that I doubt what you are saying, but many years ago my husband had a credit card in his name only, and ...(blah blah blah, really long story) ... couldn't make the payments on it and it was charged off ... I believe the amount of charge off was just a little over $800. He never recieved a 1099. If what you are saying is correct (and I'm sure it is), he should have paid taxes on that. We don't even have a copy of that years return anymore. The charge off would have been in 1996. Is there something we should do about this now?

 

[Snipes5]

In the past, it was uncommon (and possibly not even required) for banks to issue a 1099 for "debt cancellation", which is what a chargeoff really is.

Anyone who "pays" another more than $600 must issue a 1099.

I wouldn't even give a second thought to something like that from 1996. For one thing, the tax year is closed, dead and gone, provided your return was filed on time. Simple errors such as this, for a closed tax year, are best forgotten. The IRS can't open your return for that year and go after you, unless they suspect fraud.

You may sleep soundly on this one. It is also possible that the law was different back then.

Oh, and just as an aside, I too did taxes for friends and family for 10+ years prior to becoming a professional, but there is something a bit different when you're signing the bottom of the return & getting paid for it, wouldn't you say?

Haven't taught Basic, but I did teach EA...

Snipes

 

[MomIsWorried]

Oh, and just as an aside, I too did taxes for friends and family for 10+ years prior to becoming a professional, but there is something a bit different when you're signing the bottom of the return & getting paid for it, wouldn't you say? Haven't taught Basic, but I did teach EA...

Touche'

I had never heard that a charge off on a credit card was taxable (*Note to self - contact teacher from last year and rip him a new one* LOL)

Thanks for the info.

 

[Whatamimissing]

Georgia
I see the difference, thank you. Is $2800(the amount owed the creditor on the date of charge off) the correct number to use for tax liability?

 

[Snipes5]

The company will send you a 1099-C in January. That will be the amount to use.

Snipes

 

[Whatamimissing]

If there is a settlement, and if the charge off is 600 or more, very true.

 

[Snipes5]

Since it is a company and not an individual, they will likely send you a 1099C even if the amount is less than $600.

Snipes

 

[abezon]

So the next question is whether the charge-off is taxable. A discharge of debt is taxable unless it is made while the debtor is insolvent. IRC 108. You prove insolvency by filing Form 982.

 

[Miss C]

Additional Help with 1099C Needed, Please

State: Ohio

I received a 1099C for a paid off credit card. I am trying to do taxes on Turbo Tax, as I have done for a couple years now. However, when it comes to including the information on the form, I am unsure of how to enter it. Turbo Tax has a space for additional income- where it asks about 1099 forms, but it does not ask when it was canceled, nor does it ask anything except the total debt cancelled.

Can anyone offer me a tidbit of help? What do I do with the 1099 form I got in the mail? Is there something additional I need to fill out?

Thanks much!
Miss C

 

[Snipes5]

This is an old thread. Someone will perhaps answer the identical post you made in its own thread in the very same forum.

Just in case you didn't realize it, the same people read the posts in this thread and in the other one.