Bankruptcy is a big choice to make for several reasons. The biggest challenge with filing for bankruptcy is that it does not take away your Federal and State obligations.
Another challenge with filing for bankruptcy is that when your debt is cancelled you will get a 1099-C. This means that the I.R.S. gets one too. How does that I.R.S. see this? They see it as income and yes, it must be claimed as “other income”.
Are you considering filing for bankruptcy because of your Federal and State obligations, work with your Tax Preparer to help you with an Offer and Compromise. Your Tax Preparer has a better understanding of your financial situation. If you have been paying up to $2500.00 in taxes over the past three years it is time to find one that can offer more tax strategies for your individual situation.