I completed a debt settlement in 2010 where I retired 160,000 in debt for about 60,000. I had to liquidate my 401k of 38k to help. I knew about the 1099-c thing but calculated I could claim insolvency. I am still working making good Money but my expenses where high and instill own my home
I procrastinated with my taxes and thought I could get an extension but I calcaulated I will owe between 20 and 50k to the it’s depending on how I can calculate insolvency for the 8 accounts. Now I am panicking. I have 3 kids and a wife and afraid of losing everything.
It is early in the process and I may be able to get some funds within the next couple of months. I have always had a clean IRS record,a always received a refund and get a bonus next feb. How easy will it be to work something out with them. Am I in for lot of trouble missing this April 15th? I am going to find a tax attorney to help work this out.
First off, stop, take a deep breath, and rest easier knowing this will get worked out.
I think this recent article will give you tons of information. See Owe The IRS? Here Are Eight Awesome Insider Tips to Make it Less Painful and Cheaper.
Remember that the amount you will owe tax on is the amount that took you from insolvent to solvent. So if it was only the last $40,000 of debt that you settled that allowed your assets to exceed your liabilities you’d only owe tax on that amount, not the entire amount.
I think the tips offered in the article I linked to above can help. At the very least, if you are uncertain about what to do, file the request for an extension ASAP.
You’ll probably be able to get through this with the help of EasyIRS.com that can step you through dealing with the IRS. Jim Buttonow, the brains behind that service is also our resident tax expert here in the site. If you have additional IRS questions you can reach ask Jim for more help by clicking here.
Please post your responses and follow-up messages to me on this in the comments section below.I'm Freaking Out About Owing the IRS after Settling My Debt. - Jerry by Steve Rhode