Is there a tax impact with debt settlement?

  • Not everyone will owe tax on their settlements.
  • If you have a debt that is settled for less than the original balance, and the difference (the forgiven portion of the debt) is greater than $600.00, this would then need to be reported as income. In this case, you should receive a 1099-C tax form from your creditor.
  • We recommend consulting a tax attorney or tax adviser for specific information.
  • Just remember: If you do end up owing taxes, it’s because you saved money! So, you’ll want to keep that in perspective. Just like setting aside funds to use for settlements, if you are solvent and owe tax on forgiven debt, you must also set aside funds to pay the taxes.
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