Good Morning Forum,
One of my girlfriends called me this morning (too early for drama I must say) about she received a letter from Discover about claiming them on her taxes. The information was correct except for the SS# which they have as the tax ID number. So I informed her to give them a call and see what it is all about. I also suggested that she pull her reports. Well after she talked to a rep about the letter because she settled a debt with them but did not pay the late fees and interest. She has to claim it as earned income on her taxes. WT *bleep*? She said she had settled with them months ago over $4000 but today they said that the unpaid about was over $5000. So the actual debt was over $10,000. WOW
Has anyone ever heard of claiming debt on your taxes as earned income?
*mods move if in wrong forum* Thanks
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She just called me because she said it states that it is a cancelled debt and it is a 1099C form. But of course she leaves this information out of the conversation during the 4 times she has called me this morning. OH THE DRAMA.
@Creditaddict wrote:
yes when a company writes off bad debt, you have to claim it on your taxes as ordinary income tax, Luckily only 1 account claimed me when I filed bankruptcy for about $2300. Depending what tax bracket your in and the amount I guess it could be a big deal, mine didn't effect me.
oh i see, i had bad debt but i never had that happen to me. Now I understand, all i know is that with her claiming the income it will bring her into the 6 figure tax bracket when she files her taxes. at least that is what she said. i am so glad i clean up my credit.
Thanks Credit Addict, I called and told her. She seems to be better about it. oh well, until her next freak out moment.
@Anonymous wrote:
@niecey89 wrote:
@Creditaddict wrote:
yes when a company writes off bad debt, you have to claim it on your taxes as ordinary income tax, Luckily only 1 account claimed me when I filed bankruptcy for about $2300. Depending what tax bracket your in and the amount I guess it could be a big deal, mine didn't effect me.oh i see, i had bad debt but i never had that happen to me. Now I understand, all i know is that with her claiming the income it will bring her into the 6 figure tax bracket when she files her taxes. at least that is what she said. i am so glad i clean up my credit.
I have to chime in here on 2 things. 1 - this is absolutely taxable income to her - it is call cancellation of debt (COD) income. The reasoning is simple, 1 minute she owed 5K the next she did not. The counterparty is going to tax a 5K bad debt expense, hence she has to pick that up in her income to balance out the transaction. Also they have no choice but to right her a 1099-C. Not to do so would be a failure to file informational returns on their part and subject them to penalties.
2 - if this 5K COD income is putting her into 6 figure taxable income, why did she not pay the debt in the first place?!?!
because she one of my friends that live way above their means and thinks that she got it like that. She has to have the best of everything for her and her son. when things go crazy she calls me for advice. What makes it so bad is that she is in law enforcement works mad overtime or moonlights 2-3 jobs to go on 2-3 trips a year (before she pays her bills). Budget to her is a joke. oh yeah i have been to eviction court with her a couple of times. she is a sad case.
rob peter to pay paul but can not pay peter back