Financial Debt Pay Out Alternative - Am I Liable For Taxes About the Forgiven Debt?
One of the most popular options for coming out of debt is debt settlement
. The unsecured debts charge higher interest rates than the other loans. The biggest problem is the credit card debts which can easily get out of hand as it is generally unplanned expenditure. One should try to clear their debts as soon as possible. Debt settlement being the fastest way out of debt, a debtor has to remember that the forgiven amount is taxable.
During a debt settlement if the amount that has been forgiven is more than six hundred dollars then the creditor sends the report to the IRS. In case the settlement amount is less than six hundred dollars the debtor himself has to report it with the IRS. In this way the government collects all data about any debt reduction that a person has got from his creditors. The reduced amount is taken as taxable income by the IRS.
With the help of settlement companies these taxes can be avoided. People who were on the verge of filing for bankruptcy when they opted for debt settlement are exempted from this tax. Hence the details o insolvency has to be informed to the IRS. Also, this detail should be documented at the time of settlement. If your case does not qualify for insolvency, you must understand that the amount you would be paying as tax will be much less than what you would have had to pay to your creditors.
Taking the assistance of a settlement company is beneficial as they take care of all such matters while they are negotiating with the creditors. A reputed settlement company can get you a loan reduction of almost 60 % of the total debt amount.
The Writer is research analyst with Financial Solutions, which is an organization that helps overextended consumers with manageable debt settlement plan.
Financial Debt Pay Out Alternative - Am I Liable For Taxes About the Forgiven Debt?