We Prepare Tax Returns!

We prepare most type of tax returns:

Individual. 

S Corporation.

C Corporation.

Partnership.

Payroll.

Amended.

Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

Client Video Testimonials

Click here to watch some of our clients in their video testimonials!

Client Testimonials

I used Gary’s services to file my 2012 income tax return. This was my first year having an accountant do my return, as I have always done it myself using TurboTax. However, this year I had cancelled debt from my old primary residence which I was forced to convert to a rental property after relocating out of state.

While it didn’t cost me anything to do the short sale, the income tax consequence from the cancelled debt, roughly $50,000 in my case, was enough to move me from the 15% tax bracket to the 25% tax bracket.  Needless to say, I was concerned about that.

Finances were already tight and my husband and I are expecting our first child this fall. So the possibility of owing income tax was stressing me out. However, Gary was great at relieving my fears.

He is extremely knowledgeable, answered all my questions and was very thorough. I knew I was in good hands. He kept in constant contact with me throughout the process, keeping me updated on the progress of my return and letting me know what paperwork he needed to complete my filing.

In my mind, best case scenario would have been to not owe any taxes. Second best would be to only owe a little. Well, you can imagine my surprise and delight when Gary told me I was actually due a refund of a little over $2,700.00!

To top it all off, I found Gary’s fee for service to be fair, competitive and affordable; especially given the complexity of this type of return. I am so glad I did not try and go it alone this year. I am extremely pleased with Gary’s service and would recommend him highly to anyone, in fact I already have. If you have cancelled debt from a short sale or foreclosure, don’t freak out. Take a deep breath and call or email Gary. I am grateful I did.

Angie Falke of Holiday, FL

Free Consult

Even though Gary enjoys helping colleagues, we no longer provide free consults to other tax preparers. He's happy to consult on an hourly billing basis if our schedule allows.

Pay Your CPA

Enter $ Below



Other Amount:



Your Email Address :



Cancelled Debt CPA explains Insolvency, Form 982 and Form 1099-C

cancelled debt CPA Wilmington NC discusses Insolvency and Form 982

Gary Bode, CPA: cancelled debt becomes taxable income unless you can exempt or exclude it on Form 982. For a free phone consult call 399-2705.

Here’s an over view of cancelled debt, insolvency, and Forms 1099-C and 982. Click on Form 1099-C or Form 982 in the left sidebar to find numerous posts on how a cancelled debt CPA might approach the underlying issues.

This is a complex tax area, filled with IRS wrinkles, especially if it is business cancelled debt. Every case is different and depends on your specific fact pattern. The stakes are high; we use $15,000 of potential tax savings in this post. Obviously, no prudent person would base a tax return on these posts alone. While we advocate self tax preparation when feasible, cancelled debt is an area where self preparation is not always feasible. Our posts are just primers. Other sources of information are IRS Publication 4681 and the instructions for Form 982.

Cancelled Debt

On March 15th, you negotiate with a credit card company and they accept $40,000 to close out a $90,000 account. The $50,000 write-off is cancelled debt. As we’ll see below, this has tax consequences that might be mitigated with proper planning and positioning. Not to be self-serving, but sometimes a consult with a cancelled debt CPA is prudent! Other cancelled debt examples include short sales, foreclosures, car repos, etc.

1099-C

On January 15th, of the following year, the credit card company sends Form 1099-C to both you and the IRS. Look for it! Your copy may get lost in the mail whilst the IRS receives their copy. I think most cancelled debt CPAs have seen this vindictive trick by the lender that can lead to an IRS audit! The amount shown should be $50,000. The date should read March 15th. But it sometimes says December 31st, which could have harmful consequences for you, see below.

Round One: Cancelled Debt Becomes Taxable Income to the IRS

Since the lender writes off $50,000 as Bad Debt on their taxes, the IRS closes that gap by making this cancelled debt taxable income to you. A perfect circle, at least for the IRS. Just for fun, let’s say the tax liability is $15,000. Of course, cancelled debt usually implies financial hardship. So the $15,000 is a hard right hook. And Round One always goes to the IRS.

Round 2: Trying a Jab with Insolvency

Cancelled debt CPAs know that while that $50,000 automatically becomes taxable income to you, the IRS has exclusions and exemptions that might help you recover from that initial right hook. Insolvency immediately before the cancelled debt is one such exemption. But they define insolvency specifically. You have a shot at exempting up to the entire $50,000.

Sealing the Deal with Form 982

You claim any exemption of the cancelled debt, as taxable income, on the notorious Form 982. I think the IRS does a good job with Form 982. But it serves multiple purposes and covers complex tax issues. I’ve had clients who insist the IRS makes it convoluted to thwart attempts to use it. Other posts in the site cover some of the Form 982 mechanics. For businesses, Form 982 poses additional complications, like adjusting the tax attributes of your remaining assets. Lots of IRS wrinkles.

Summary: Danger Will Robinson!

Cancelled debt becomes taxable income. But, assuming you qualify, or can be made to qualify, you can use Form 982 to exempt or exclude it from Gross Income and avoid the subequent tax. Proactive planning can really help, as timing is crucial. But most folks don’t even realize the trap until next year’s tax preparation. Look for a Form 1099-C to arrive with your other tax documents! Check it carefully for the amount and date of debt cancellation. Use Form 982 to exclude or exempt cancelled debt from taxable income. Despite tight finances, this is a tax area where a cancelled debt CPA earns his keep!

We’re a cancelled debt CPA firm in Wilmington NC with a virtual office to serve long distance clients. Read any of our posts on Form 982, cancelled debt, short sales etc., to help gauge our expertise and proactive attitude. For a free phone consult, please call (910) 399-2705.

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>