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Old 01-13-2010, 03:50 PM   #11
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Quote:
Originally Posted by DurangoHomeBrewMafia View Post
Hal- why would you owe the IRS "30-40%"? If it is taxed to you as income it should be taxed at whatever your effective rate is.
It depends on your tax bracket, but since this is added on top of your annual income the impact on the tax you owe is as if it was all taxed at your bracket's rate. Plus there was nothing withheld from it, so you have to pony up the whole tax amount.

The 25% tax bracket starts at $33,950, so for most people who are likely to be in credit trouble (i.e. people who had enough income to get the credit cards approved in the first place) saying 30% might be an exaggeration, but not by much.

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Old 01-13-2010, 03:50 PM   #12
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These credit counselling people do no more than you could yourself.

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Old 01-13-2010, 04:02 PM   #13
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Cheezy - agreed

Dave - true if you are a single person, and that $33,950 is taxable income, not gross just to clarify. From box 7 of your 1040 to box 43 your income can decrease dramatically due to above the line deductions, itemized deductions, personal exemptions, etc.

Also, if you are bankrupt or insolvent, or it is due to mortgage indebtedness before 2013, it will not be considered income.
In general please consult your own tax advisor to see how it affects your situation!

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Old 01-13-2010, 04:02 PM   #14
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I'm not sure if canceled debt is taxed as capital gains. Here's what the IRS says about it:

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Canceled Debts

Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. You have no income from the canceled debt if it is intended as a gift to you. A debt includes any indebtedness for which you are liable or which attaches to property you hold.

If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21. If it is a business debt, report the amount on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) (or on Schedule F (Form 1040), Profit or Loss From Farming, if the debt is farm debt and you are a farmer).

If the debt is a business debt, you may be able to elect to recognize the canceled debt in income over a 5 tax year period. For information on this election, see Revenue Procedure 2009-37 available at http://www.irs.gov/irb/2009-36_IRB/ar07.html.
(From this web site.)

My guess is the forgiven debt is taxed as regular income, but I'm not an accountant so what I think doesn't count.

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Old 01-13-2010, 04:04 PM   #15
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I did a lump sum payment to a cell phone company a year ago, and I saved about $800 paying it off at once, and I never got a 1099 for it. I also make, uh, over $33,950 a year The bill itself was $2700.

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Old 01-13-2010, 04:06 PM   #16
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Internal Revenue Code Section 108 covers this ad nauseam, if you would like some light reading material before bed!

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Old 01-13-2010, 05:18 PM   #17
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if your credit is already shot, and you are in over your head, why wouldn't you just file bankruptcy? i'd rather pay a lawyer 2500 bucks and let the courts handle it, than **** around with creditors, or third party scammers.

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Old 01-13-2010, 05:32 PM   #18
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Quote:
Originally Posted by DurangoHomeBrewMafia View Post
Hal- why would you owe the IRS "30-40%"? If it is taxed to you as income it should be taxed at whatever your effective rate is.
Marginal income is taxed at the marginal rate which 33% or 35% for some of us.

Certainly most people have a marginal rate 28% or lower.
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Old 01-13-2010, 06:50 PM   #19
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I just piled all of my debt together, figured out how quickly I wanted to pay it off and worked out my gross monthly payment. I'd pay the interest earned on every account and take what ever was left of the gross payment and apply it to the account with the highest interest rate. Not too difficult. First things first though, cut up the damn cards.

I can't stand terrestrial radio any more. When I got my recent car I was listening to it till I moved my head unit. At least for a few days. That barrage of advertisement and crap you have to listen to in order to hear 10 minutes worth of programming is nuts. "7 minutes of adds for 3 minutes of music", forget that noise. Though I would always laugh at the credit consolidator when it was immediately followed by the "Call for quick cash! quick radio cash!" using the 'Head On' philosophy of advertisement. Then the Life alert thingy, "Hello mam, you're son Tommy fell and hurt his elbow, his brother said it does not look broken, would you like me to send an ambulance?" WTF?! Tommy is too stupid to grab the phone and call the same cell phone number you used to contact me about this? He's lucky he wasn't weeded out by natural selection!

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Old 01-13-2010, 07:09 PM   #20
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Quote:
Originally Posted by DurangoHomeBrewMafia View Post
Hal- why would you owe the IRS "30-40%"? If it is taxed to you as income it should be taxed at whatever your effective rate is.
You're right about that. I was thinking 1099-C was one of the 1099s that required you to pay the additional withholding taxes. I looked into it and am wrong about that. It would be the effective rate.
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