Paying taxes is painful… but reading about them shouldn’t be.
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I get a number of bankruptcy-related questions submitted via ask the taxgirl. That’s why I was intrigued when I was asked to write a piece on Wallet Pop about how Chapter 13 payments affect your taxes. You can check out what I had to say here: Wage earner’s bankruptcy doesn’t kill all tax deductions.
If you have additional bankruptcy-related tax questions, you can ask the taxgirl.
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[youtube=http://www.youtube.com/watch?v=dNO6vp4V8L4]
The band ‘N Sync isn’t the only one singing, “Bye Bye Bye” these days. Former Backstreet Boys and ‘N Sync manager Lou Pearlman will find out how hard it is to say goodbye to his lakefront Orlando home ($7.1 million) and an Atlantic City, New Jersey condominium ($335,000). A bankruptcy judge has approved the sale of both.
The bankruptcy judge also approved the return of deposits Pearlman made toward a November cruise on the Queen Mary 2, which he clearly won’t be taking since he is currently sitting in jail on charges of bank fraud, mail and wire fraud. Also to be returned are eight season tickets to the Orlando Magic games (no great loss there).
Pearlman allegedly defrauded more than 1,000 investors out of more than $315 million. The IRS has still not commented on the matter of fraudulent tax returns which were part of the scam.
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As more and more Americans find themselves increasingly in debt; many seek alternative methods of reducing debt loads such as negotiating with their creditors. Often, in such negotiations, creditors agree to reduce the amount of debt owed. Terrific, right?
Don’t spend that extra cash just yet.
Companies which reduce debt loans in a non-bankruptcy discharge are required to report the reduction totals $600 or more. The amount of the discharge is to be reported on a form 1099, a copy of which is provided to the customer and to the IRS.
Discharge of debt is considered income to the debtor in a non-bankruptcy discharge and must be reported on the debtor’s personal income tax return.
Breathing a sigh of relief because you opted for bankruptcy instead? Not so fast. While consumer debts are not required to be reported to IRS, indebtedness acquired as a result of a business or investment purpose may be – including discharged penalties, fees, administrative costs and fines.
Consult your tax advisor if you have questions.
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