Cancellation of Debt & Taxes. There is a Link

Last updated on August 28, 2021

Forgiveness or cancellation of debt is a moment of joy. You are happy that you do not need to pay all that money that was owed. But the IRS is there to share your joy because it receives taxes on forgiven or cancelled debt. It hurts, but there is little you can do about it except to calculate how much taxes you owe to the IRS on the cancelled debt and pay it to them.

Many times taxpayers do not pay taxes to the IRS on cancelled or forgiven debt because they are unaware that the IRS charges taxes on cancelled debt. That lands them into tax debt. They get to know about the tax debt when the IRS sends them a notice regarding its payment.

At such times, it is best to take legal tax help from tax resolution companies or tax professionals so that you can negotiate the terms and conditions of the payment to suit you. Tax help can assist in removing IRS penalties, pay the debt amount in installments and minimize interest on tax debt by planning payments. They also negotiate with the IRS on the behalf of taxpayers to make the payment of the debt easier.

You can benefit from expert tax help in more ways than one. Apart from saving money, you also get the benefit of saving time and effort in dealing with the IRS on your own. Most American taxpayers use outside help in cases of tax debt.

Taxes on cancelled debt may sound unfair, but to stay in the good books of the IRS, you need to do just that: pay taxes on cancelled debt. You can be glad the debt got cancelled or forgiven. It is best to see the glass half-filled.