It’s tax season so everyone should be getting their w2 and 1099 forms in the mail. Some of you may also get a 1099-C for a cancelled debt. Before treating it as taxable income on your taxes, take a look at the following.

First off, have you filed bankruptcy and was the debt that you received the 1099-C for discharged in your bankruptcy? If it was, then the 1099-C is not taxable income.

If that doesn’t apply, are you “insolvent”? For tax purposes, insolvent means more debts than income. For a vast majority of people receiving a 1099-C, the answer is yes.

If either apply to you, you or your tax preparer need to prepare a IRS Form 982 to exclude the 1099-C income from your taxable income. If this was for a previous year’s taxes, you may be able to go back and amend your taxes to reduce your taxes or get a refund for an overpayment.

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