Recent times of economic crisis has seen a lot of people struggling with their finances and falling in the debt trap. This is because almost all of them have exposed themselves to several loans which are beyond their capacity to hold looking at their income. The situation led people to live their life from paycheck to paycheck. Any disruption in their salaries saw them striving to meet their expenses. Most of them were found to struggle with their debts and the repayment of the same became a huge burden for them. Such circumstances forced people into gaining knowledge about how their life really gets affected by the loans they take and what are the factors that affect their finances. [Read more…]
The Internal Revenue Service (IRS) can consider a loan that has been written off or settled by your creditors as a taxable income. In other words, you are liable to pay taxes on the forgiven debt amount you owed to your creditors.
How forgiven debts are justified as taxable income
Generally, creditors write off debts after a certain period of time, say for instance, one, two or three years after you’ve defaulted on your loans. It is the creditors who then would stop all sorts of collection activities to get back their loan money, declare them as uncollectible and report about the same as lost income to the IRS. This the creditors do to minimize their tax burden.