I received a 1099-C for $40,000. I am in the military using the public service loan forgiveness program to pay off my student loans (total is $70,000). This is my third year into the program. This 1099-C came from student loan debt that had just timed out (so to speak). I am facing a large tax bill that I can't afford. Can I write this down or off? Please advise.
The cancellation of debt or reduction of a loan is considered income, and therefore it is taxable. They are writing off your debt so to speak, so you cannot write this off. However, the benefit of the reduction of a large loan ($40,000) far outweighs the taxes owed (approximately $4,000-$6,000). My advice would be to go on a payment plan or to see if you qualify for an “offer in compromise.” Payment plans can be short term (120 days or less) or long term (120 days or more). Short-term plans have a free application, and you can set it up via phone, mail, or in person. Keep in mind the payment isn’t owed until April 17 (April 15 falls on a weekend and we have a recognized tax holiday). Therefore, I would save as much as possible between now and April to see if you can minimize the payment plan option (they still accrue interest and penalties until the balance is paid in full). You can find more information about payment plan options and an on-line application on the IRS website.
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Answered by: Nicole T. Buckman, CPA, is with Jones Kohanski & Co. PC in Moosic, Pa.