Comments on: Comparing Debt Consolidation, Debt Management and Debt Settlement

By: Financial Samurai

Financial Samurai — Thu, 04 Feb 2010 03:09:59 +0000

Thanks! I am blind. The problem with aging.

By: Ryan

Ryan — Wed, 03 Feb 2010 19:54:25 +0000

FS, Kristen’s bio is in the article. She works for a non-profit debt relief agency and she is a freelance writer.

By: Financial Samurai

Financial Samurai — Wed, 03 Feb 2010 19:47:35 +0000

Helpful. Who is this “guest contributor” btw?

By: fredct

fredct — Wed, 03 Feb 2010 17:34:19 +0000

One more for fun:
“Franklin Templeton is not required to report distributions less than $10 unless backup withholding was withheld. Although the IRS does not require Franklin Templeton to report distributions less than $10, the IRS requires you to report such distributions on your income tax return. Although Form 1099-DIV may not be mailed to you, distributions less than $10 can be found on your Year-End Asset Summary Statement.”
https://www.franklintempleton.com/retail/pages/generic_content/prog_serv/tax/news/tax_faqs_1099div.jsf

By: fredct

fredct — Wed, 03 Feb 2010 17:33:06 +0000

Well, it doesn’t talk about it more because it doesn’t say not to. I’ll explain, but first, one quick correction of mine… I believe canceled debt is reported on a 1099-C, not -MISC.

Anyway, here’s the quote from IRS Publication 17 (your source for everything personal income tax related), under the “Canceled Debt” section:
“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.”
http://www.irs.gov/publications/p17/ch12.html#en_US_publink1000171951

Note that it says nothing about being below a certain amount. It *does* say: “Form 1099-C. If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. The amount of the canceled debt is shown in box 2.”

But we should not conflate the difference between receiving a 1099 for something, and being required to report it. You are required to report everything truthfully and fully, whether you got a 1099 or not.

This is also stated in Publication 17:
Interest:
“Interest not reported on Form 1099-INT. Even if you do not receive Form 1099-INT, you must still report all of your taxable interest income. For example, you may receive distributive shares of interest from partnerships or S corporations. This interest is reported to you on Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S).”
http://www.irs.gov/publications/p17/ch07.html#en_US_publink1000171422

Dividends:
“Dividends not reported on Form 1099-DIV. Even if you do not receive Form 1099-DIV, you must still report all of your taxable dividend income. For example, you may receive distributive shares of dividends from partnerships or S corporations. These dividends are reported to you on Schedule K-1 (Form 1065) and Schedule K-1 (Form 1120S).”
http://www.irs.gov/publications/p17/ch08.html#en_US_publink1000171576

I can’t find a general rule, but really the main point is that if there’s nothing saying you don’t have to report it, so you do. Here’s some more sources:
http://taxes.about.com/od/findataxpreparer/a/documents_2.htm
http://www.taxalmanac.org/index.php/Discussion:What_to_do_with_income_not_reported_on_1099_misc
(the taxalamanac one gets into some details on where to report it, but not really if)

By: Kristen

Kristen — Wed, 03 Feb 2010 17:05:34 +0000

Thanks for the clarification. I’m definitely going to do more research on this. I have tons of information about the $600 threshold, yet nowhere that I’ve found talks about having to declare less than $600 as income.

It should also be noted that if the forgiven debt is $600 or more and a person doesn’t get a 1099 form, that doesn’t mean they don’t owe the taxes. No form does not equal no taxes.

By: fredct

fredct — Wed, 03 Feb 2010 15:08:16 +0000

Great post, thanks for the clarification as the terms often get tossed around without definition.

However, I have one not-so-small nitpick:
“If your creditor forgives more than $600 of your debt, you will be required to pay income tax on the forgiven amount.”

Not true. $600 may be the threshold for the creditor to file a 1099-MISC, but if they forgive you 1 cent of debt (or, technically, 50 cents, since tax forms usually round to the dollar) you still must legally recognize it as income.

Don’t mistake 1099 filing thresholds with reporting thresholds. For instance, a 1099-INT must be filed if a bank pays you over $10, but you’re still required to include it on your taxes if a bank pays you $5, or $1 or 50 cents, even if they don’t send you a 1099.