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Form 982 CPA discusses Credit Card Cancelled Debt and Insolvency | Form 982 Example

form 982 cpa explains credit debt and insolvency using an example

Gary Bode, CPA: credit card cancelled debt on Form 1099-C becomes taxable income unless you can exclude it on IRS Form 982. (910) 399-2705.

Form 982 CPAs see increased use of the insolvency exclusion for cancelled credit card debt during the recession. Hopefully we’ll see less in 2013. Of course, Form 982 is a typical, multi-function IRS document and credit card cancelled debt is just one part of it. Please note insolvency has a special definition with the IRS; be sure to understand it before attempting Form 982. There’s a link at the end of the post that shows a completed Form 982 example as prepared by our CPA firm.

How do I get Credit Card Companies to cancel my Debt

Most cancelled debt occurs involuntarily, but Form 982 CPAs still get asked this question often. An attorney friend of mine says you just stop making payments. Each time you talk with a credit card representative, stress how cash poor you are. Be consistent with all phone calls. Remember credit card cancelled debt affects your credit score, so plan accordingly.

How does the Credit Card company Report Cancelled Debt?

They send a Form 1099-C to both you and the IRS. Check this document carefully. Sometimes there are errors in the amount and/or date of the cancelled debt.

Is Cancelled Credit Card debt Taxable?

Yes. All cancelled debt becomes taxable income unless you can exclude it on Form 982. For credit card debt, Form 982 calculates how much you can exclude via insolvency.

Does Form 982 raise IRS Red Flags?

“Form 982 has multiple functions. I think the IRS looks closely at excluded cancelled debt. It’s prudent to present it correctly.”
– Gary Bode, Form 982 CPA

Probably not. But I’m confident they check it for accuracy. And it’s certainly easier to get it right the first time to avoid IRS Notices like CP2000.

I’m a Form 982 and insolvency CPA with a virtual to help you with credit card cancelled debt wherever you live. If you get stuck during self preparation consider calling for a free consult. If we can help, we will. If and when you decide to use a CPA, we’ll handle everything for you. (910) 399 2705.

Form 982 example

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