What considers you to be insolvent when it comes to taxes.?
We filed our taxes mid January. Low and behold in the mail about 3 weeks later we get a 1099C from one of our creditors. I have been reading online but I'm so confused if we would be considered insolvent and not have to pay taxes on it. I'm trying to get this figured out as soon as I can so that I guess I can file an ammendment?? before april 15th
Here is some background.
We have $30,000 in Credit card debt that we are behind in, all of them are in collections. We rent an apartment we have a car worth $500 and a car worth maybe $5000. We have just basic household stuff, Nothing extravagant, basic furniture and couple little TV's, Clothes, Well you get the Idea. We have a NET income of $20,000 a year and monthly necessary expenses for living about $1500/month. We live paycheck to paycheck literally. We qualify and accept Food Stamps Supplement and our daughter is on State insurance. The 1099C was for a forgiven amount total of $893 which of course we don't have that amount nor will we have the amount to pay taxes on it.
So is there any professionals reading this that know if we are more than likely considered insolvent? I just don't understand if they look at the total debt we owe to everyone as $30,000, or if they just see the $893 dollars as hey you could sell your car? Also I filed through H&R block and I have no idea what to do as far as an ammendment goes, Thanks much!
- Bostonian In MOLv 71 decade agoFavorite Answer
You are insolvent if your liabilities total more than the value of your assets. If you were insolvent on the date of the forgiveness of the debt, the amount of the forgiven debt up to the amount of your insolvency is not included in taxable income.
Add up the value of everything that you own. Count clothing and used appliances, TVs, stereos, etc. at what you would pay at a Goodwill shop. Use the Kelly Bluebook trade-in value for any vehicles.
Now add up everything that you owe and compare it to the value of what you own. If you owe more than you own, you're insolvent.
Using what you've provided, that value of your assets might be somewhere between $10,000 and maybe $15,000. With $30,000 in credit card debt you'd be insolvent between $15,000 and $20,000. As long as the debt that was forgiven (as shown on the 1099C) is less than $15,000 then none of it is included in your income.
You claim an exclusion of the forgiven debt using Form 982. You must attach a simple balance sheet showing the value of your assets and liabilities. This can get a bit tricky if you're not familiar with basic bookkeeping concepts so you may wish to see if there's a local VITA office that might be able to help you with this.
One observation is in order though. I'm assuming that you're married as you use the term "we." If you have any children it may not be worth fretting over it at all. If you have one child, the first $21,400 of your income is not taxable at all. Adding the $893 to your $20,000 of income still leaves you below that amount, effectively rendering the entire 1099-C amount moot as it won't have any affect on your taxable income. If that is the case, put the 1099-C amount on the other income line of your tax return and write "COD" in the white space next to it. Once you subtract out your Standard deduction and personal and dependency exemptions, your taxable income will still be $0.
If you've already filed and have at least one child, the COD will be moot since it won't affect your taxable income or cost any taxes so you can just ignore the amendment.
- hickersonLv 44 years ago
All yet approximately 3 to 4 % of GDP ( 500 billion) of the deficit will go away if the economic gadget recovers so it fairly is not that undesirable. we don't could desire to stability the funds we in simple terms could desire to cut back the deficit so as that the debt grows slower that GDP. shall we do a mix of spending cuts and tax will strengthen to restoration the issue, yet as quickly as we don't sometime approximately ten years from now the treasury could have an public sale of bonds to finance the debt and there'll in no way be any purchasers. a stable start up could be if after the election the Congress fails to agree on which of the Bush tax cut back to amplify so none of them are, and we would right away have the tax strengthen we want.