[whitneysconfused]

I am a college student in credit card debt. (what else is new) I was offered to settle my debt. I had a total of $3,300 dollars in debt and I offerd to pay 2,700. The difference was 663.00. I recenly received a 1099-c form because my balace owed was over 600 dollars, but only by $663 dollars!! I have the money now. Is there any way I can pay my bank this amount to avoid this 1099-c issue?:(

[excon]

Hello w:

Why would you do that? Even if you owe tax (and you probably don't), the $663 is income and your tax on it might be 25% or so. Seems like it's a better deal to pay the IRS $165 rather than the bank $663.

excon

[mldubose]

It's not a big deal. When you settle a credit card debt, the amount you didn't have to pay is considered income. It's just added into all of your other income. I did this before, and it made little difference at tax time. Just think of the money you saved. Sure there's a tiny bit of taxes on it, but take that $663 or so and open an IRA.

[MukatA]

$663 is for debt cancellation. You must include the canceled amount in your income. Report this amount on Form 1040, line 21 (Other Income).

[AtlantaTaxExpert]

Agreed! Paying BoA back makes no sense once the debt is settled.

The extra tax is only a small part of the income, and, as noted, you may not even owe any taxes.

Just make sure you report it on Line #12 of Form 1040 and NOT on Schedule C.

[whitneysconfused]

Thanks For All Of Your Advice!!

[AtlantaTaxExpert]

Glad to help!