Your debt consolidation company assures you that several of your creditors have agreed to forgive what you owe them – they’ve decided to write off the debts for good. Sounds terrific right?
BEWARE! There are hidden tax consequences when debts are forgiven by your creditors.
How Does the IRS View Debt Cancellation?
Did your debt consolidation company or credit counseling company explain to you that the IRS views almost all debt cancellations as an increase to your income? You may not have any more money, but because you didn’t have to pay money to a creditor – in the collective mind of the IRS – your gross income increased.
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Bankruptcy Updates, Tax Law Updates
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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