Posts Tagged ‘debt settlement’

Tax Consequences of Debt Settlement

Posted on: January 31st, 2015 by

Debt Consolidation - Tax Professional - Rockville, MDThe promise to settle all your debts pennies on the dollar sounds like a dream come true for countless consumer and the promise of hundreds of advertisers.  Beware.  There can be major tax consequences to having your debts forgiven.  Once you have your debts canceled, the forgiven balance is considered taxable income on your annual returns.  The IRS, unfairly in my opinion, views the forgiven amount as going from a loan you had to repay to income the moment you didn’t have to pay it back.  There are certain circumstances in which forgiven debt is not considered income and you should speak to a qualified tax professional to see if you qualify or can qualify for one of these special circumstances.  When considering debt forgiveness make sure to consider the effect on your credit score and if it would be the best financial move for you in the long run as well.