Published February 14, 2018|2 min read
Ah, tax season. The time of year when everyone gets out their favorite shoe box full of receipts and donation slips and sits down to sum up the previous year's earnings for Uncle Sam.
And guess what? The IRS started accepting tax returns Jan. 29 and employers had to send out W-2 forms by Jan. 31, so no more excuses — it’s time to file.
In addition to that shoe box, you’re going to need W-2s from your day job and side hustle and paperwork about your medical savings account contributions. You’ll also need any 1098s, which are reports of the things you can deduct (think tuition or mortgage interest) and 1099s showing other earned income, like interest or dividends.
And if a 1099-C arrived in the mail, you’re going to need that, too.
Unless you’re fluent in tax form lingo, all these numbers and letters can get confusing. That’s why we turned to a professional for some clarity.
Bruce McClary, vice president of communications for the National Foundation for Credit Counseling, said a 1099-C is a form prepared by your lender that details any forgiven debts from the year.
“The most common reason that people receive a 1099-C is that they negotiated a settlement that resulted in the cancellation of all or part of a debt they owe to the lender,” McClary said. “Anyone who had a foreclosure or short sale on their home may also receive this form.”
“Lenders are required to report a forgiven debt that is $600 or greater, which means it is considered as part of your taxable income by the Internal Revenue Service,” McClary said.
That said, it’s your responsibility to report that income on your tax returns or you could face a penalty — and no one wants that.
If you know you had a forgiven debt and should have received a 1099-C, but didn’t, McClary recommends reaching out to your lender and requesting one. You don’t want to leave this off your taxes and get hit with a fine later.
The simple act of receiving a 1099-C does not mean your debt is paid in full.
“In some cases the settlement may only be for a portion of the total balance, meaning that there is still part of the loan requiring repayment,” McClary said. “In other cases, like a creditor charge-off, the entire debt may still be collectible.”
“The recommended course of action is to reach out and dispute the information directly with the creditor that issued the 1099-C,” McClary said. He also said the lender may not fix any problems or get back to you immediately, so “it pays to be detailed and persistent.”
Because April 15 is on a Sunday and April 16 is Emancipation Day in Washington, you have until April 17 to file.
Taxes can be confusing, but we broke down the process to make it easier. Check out this guide that goes over how to file your taxes.
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