Being debt-free is a worthwhile goal; unfortunately, for most people, it is unrealistic – especially for those of pre-retirement age with children, a car payment or two, and a mortgage. As such, most people need to focus on managing their debt first since it’s likely to be there for much of their adult life. With inflation on the rise (and subsequent interest rate hikes), your credit card debt could be even more difficult to pay off.
Generally, debt that is forgiven or canceled by a lender is considered taxable income by the IRS and must be included as income on your tax return. When that debt is forgiven, negotiated down (when you pay less than you owe), or canceled you will receive a Form 1099-C, Cancellation of Debt, from your financial institution or credit union. Form 1099-C shows the amount of canceled or forgiven debt that was reported to the IRS. Creditors who forgive $600 or more of debt are required to issue this form.
Credit card balances typically follow a seasonal pattern, increasing significantly in the fourth quarter, coinciding with holiday shopping, and millions of taxpayers are still carrying debt from last year’s holiday season. Whether you are diligent about paying your credit card in full every month or are still paying down debt from a previous spending spree, these tips will help you avoid overspending this year and keep credit card spending on track.
Signed into law on March 11, 2021, the American Rescue Plan Act (ARPA) contains several tax provisions affecting individuals and families. Let’s take a look:
With a potential economic downturn in the wings due to COVID-19, being debt-free is a worthwhile goal. Unfortunately, between mortgages, car loans, credit cards, and student loans, this is unrealistic for most people – especially those of pre-retirement age. Instead, it’s better to start by focusing on managing debt. When you handle debt wisely, you won’t have to shell out every cent of your hard-earned money to your lender or feel like you’re always on the verge of bankruptcy.
These tips will help you get started paying off debt the smart way and help you save extra money to pay down those debts even faster:
Taxpayers who took out federal or private student loans to finance their attendance at a nonprofit or for-profit school now qualify for safe harbor with regard to cancellation of debt income for discharged student loans. Relief is also extended to any creditor that would otherwise be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.