You may not have to include it in income

When you are liable for a loan but can't repay it, some lenders will forgive the debt. What many borrowers don't realize is that this cancellation of debt results in taxable income in the year of forgiveness. The lender usually will issue a 1099-C to report the cancelled debt. If you receive one, don't ignore it. Be sure to give it to your tax preparer and discuss the circumstances surrounding the loan.

If you have cancelled debt but are bankrupt or insolvent, you may exclude the income on your tax return. To prove insolvency, your liabilities must exceed the fair market value of your assets immediately before the debt discharge. The amount of forgiven debt can be excluded cannot be more than the amount your liabilities exceed the value of your assets.

In light of the current mortgage crisis, Congress has provided more relief for borrowers who couldn't pay their mortgages. If you have forgiveness of debt on the mortgage of your qualified principal residence (usually due to foreclosure), you don't have to recognize cancelled debt. The maximum amount of debt forgiveness eligible for exclusion is $2 million. This relief is available for tax years 2007 through 2014.

Tax Tips Small Business

  • Thinking of Selling Your Corporation?

    Carefully review your options before making a decision

    When it come time to sell your corporation, you have two options. You can either sell the corporation stock or have the corporation sell the assets and distribute the proceeds. The tax implications of the two sales are very different. If you choose to sell the stock, you are the seller. The corporation is not affected by the transaction. The new owner steps into your shoes as the shareholder and takes over the existing corporation. If your share of the proceeds exceeds your basis in the stock, you'll have a capital gain to report on Schedule D.

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Small Business Quick Tip

  • Personal Use of Vehicle

    If your business owns a vehicle that is available for an employee's personal and business use, the vehicle is nevertheless considered used 100 percent for business on the business tax return. The personal-use percentage is included on the employee's W-2 as additional compensation.
Thursday, 17th January 2019
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Tax Tips Personal

  • Direct Deposit of Your Tax Refund

    More options are available to you

    The IRS is now allowing taxpayers who are due a tax refund the option of having that refund split up and deposited in up to three different bank accounts.

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Personal Quick Tip

  • IRA Contribution Deadline 2

    Contributions to your IRA must be made by the due date of your tax return. Generally this is April 15. Extending the due date of your tax return does not extend the due date of your IRA contribution.