Ways to make tax payments on your debt ... - Decision Tree Financial

Ways to make tax payments on your debt settlements

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Ways to make tax payments on your debt settlements

After the huge economic meltdown of 2008, a lot of Americans are suffocated by an incredible amount of credit card debt. If you are one of them and finding it difficult to cope up with the problem, it?s probably time to start considering some debt relief options. With?debt settlement solutions, it?s possible for you to solve your debt problems and lead a debt free life. In a debt settlement procedure you pay back a part of the debt in swap for forgiveness of the remaining amount. A lot of people are astonished to find that the forgiven debt amount is regarded taxable income.

Tax consequences of debt settlements

Debt settlement is a taxable affair. Any forgiven debt amount that surpasses $600 is considered taxable income. For instance, if you have a tax rate of 20%, your forgiven debt amount of $5,000 will carry a tax liability of $1000. This is a debt amount that the IRS won?t let off. However, under such circumstances when your resources are less than your legal responsibilities, you may request the IRS to remove that tax liability by submitting form 982.

While it?s advisable to discuss complicated tax circumstances with an experienced tax expert, the following guidelines will help you deal with the problems related to the tax consequences of a forgiven debt.

Find out if your forgiven debt is taxable

• Now include your entire credit card debts, outstanding loans and other liabilities that you need to pay just before settling or canceling a debt in the proper lines on part 1 of the liquidation spreadsheet in IRS Publication 4861.

• Enter the fair market price of all properties you owned just before the forgiveness or termination of a debt on the appropriate lines in part 2 of the liquidation spreadsheet. Include account balances, vehicles, cash, property, household products, jewelry, tools, electronics, and so on. Make sure that you also include investments, stocks and bonds, cash price of life insurance policies, ownership value of businesses, retirement accounts, and any other property.

• Finally, deduct the value of your properties from the total of all debts payable and enter this figure on line 40 of the liquidation spreadsheet. If this number is more than zero, it points out to your amount of insolvency.

Compute and file your taxes

Lastly, fill out Form 982 and submit it with your 1040 income tax return.

?Article Submitted by?Sidney Terrell

Sidney?s Blogs are:

http://darngoodblogging.com/
http://www.weredefine.com/
http://monsterhols.com/
http://www.quicklyprofit.com/
http://www.savedude.com/
http://www.moneyandinvesting.net/

Source: http://decisiontreefinancial.net/2012/03/02/ways-to-make-tax-payments-on-your-debt-settlements/

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