Do I Have to Pay Taxes on Settled Debt?
Debt settlement agreements in Georgia can be enormously beneficial to Lilburn residents. Are you a debtor who is struggling to see a way of paying off your debt but you have the ability to make a lump sum payment for a percentage of what you currently owe? Many debtors are in this situation, and debt settlement is often the best option. Debt settlement involves negotiating a payoff amount with your creditor (or creditors). The creditor agrees to accept a percentage of the total amount the debtor owes. In exchange, the creditor agrees to forgive the remaining amount that the debtor owes. This is a common way for debtors in Georgia to get out of debt.
If you are considering debt settlement, you may be wondering: are there tax consequences associated with that forgiven debt? Or, in other words, will you have to pay taxes on settled debt? Our Lilburn debt settlement lawyer can explain how this works.
Forgiven Debt is Probably Taxable
When you reach a debt settlement agreement and pay the creditor a lump sum that equals a percentage of what you owe (in exchange for having the remaining debt forgiven), you will probably owe taxes on the forgiven amount. To be clear, the full debt settlement agreement is not taxed — the money you pay is not part of what you will owe taxes on. Rather, the amount of debt forgiven may be taxable. For example, if you originally owe $50,000 in credit card debt and reach an agreement in which you pay $20,000 in exchange for having $30,000 forgiven, the $30,000 will be taxable.
As CNBC explains, any forgiven debt totaling more than $600 is taxable income that must be reported to the Internal Revenue Service (IRS). That forgiven debt reported to the IRS will be taxable.
How Much Tax Will I Owe?
The amount of tax you will owe on any amount of forgiven debt will depend on your financial circumstances and the total amount of forgiven debt.
As the IRS explains, forgiven debt is taxed as if it were income: “Generally, if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes.” Accordingly, any forgiven debt will be added to the amount of “income” you earned, and the tax rate will be based on your income. To get a sense of the amount you would likely owe, you should discuss debt settlement options and your current financial circumstances with a lawyer.
Contact a Georgia Lilburn Debt Settlement Lawyer
For any questions about debt settlement or what you can expect after a debt settlement, it is important to talk with a lawyer who has experience assisting debtors with debt settlement agreements in Georgia. An experienced Georgia debt settlement attorney at Konn Law Firm LLC can talk to you today to learn more about your existing debt and to provide you with more information about your options. Once you are ready, we can begin to discuss moving forward with debt settlement conversations with your creditors. Contact us today for help with your debt.
Sources:
cnbc.com/select/taxes-on-forgiven-debt/#:~:text=Yes%2C%20any%20forgiven%20debt%20above,program%20is%20right%20for%20you
irs.gov/newsroom/what-if-my-debt-is-forgiven
