Q: I had a car repossessed over 10 years ago. Now Ally financial has issued a 1099 for over $17,000. I am on a fixed income
What should I do with my problem. I am sure the IRS will not let me make payments on this. Plus the fines and interest.
A: You may qualify for exceptions to cancellation of debt income. Consult a tax professional.
A:
Receiving a 1099-C for a debt that was forgiven or canceled, especially one from over a decade ago, can be distressing, particularly when on a fixed income. The IRS considers forgiven debt as income, which can indeed lead to a significant tax liability. However, there are steps you can take to address this situation.
First, verify the accuracy of the 1099-C. Errors can occur, and you'll want to ensure that the amount and the fact of the cancellation are correct. If there are discrepancies, contact Ally Financial to request a correction.
Second, explore IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Depending on your financial situation, particularly if you were insolvent (owing more than your assets were worth) at the time the debt was canceled, you may qualify to exclude some or all of this debt from your income. Insolvency can limit the taxable impact of a forgiven debt.
Third, the IRS does offer payment plans for those who cannot pay their tax liability in full. While the prospect of additional fines and interest is daunting, setting up a payment arrangement can make the liability more manageable. Communicating with the IRS proactively is key to finding a viable path forward.
Finally, consulting with a tax professional or an attorney can provide you with specific advice tailored to your situation. They can help you navigate the complexities of tax law, potentially minimize your tax liability, and set up a plan to deal with this unexpected financial burden.
It's important to take action sooner rather than later to avoid additional penalties and interest. Addressing the issue head-on can help mitigate the financial impact and provide you with a clearer path forward.
A: Claim at least one exemption on your w4 if you have one. Tax Refunds will be grabbed by the IRS.
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