Have a Tax Question? Ask a Tax Expert
Thank you for using justanswer.
This is a hard concept for alot of people , and I admit it took me a little bit of time to wrap my brain around it
Lets start with an easy example first
Lets imagine that you purchased a big ticket item.....a large screen tv, etc
and let's say that you paid by cc
the company you purchased the tv from has been paid in full by your cc
and lets also say that 3 months later, before you finish paying off the balance you lose your job
now you can no longer pay your cc
you still own the tv, which according to the company you purchased it from, is paid in full
Lets also say that the tv was $1000,
and you managed to pay off $300 of that debt to your cc company before you lost your job.
so eventually, you receive a forgiveness of debt in the amount of $700
that $700 NEVER came out of your pocket
Part of the reason for the cc company to issue the cancellation of debt is for their book keeping purposes
the other part is, as I stated before, the fact that you never actually paid the $700, meaning for all intents and purposes your cc company is left "holding the bag"
So, you received the benefit of not having to pay the $700
If you can't pay a debt in full, there are ALWAYS consequences that must be dealt with.
From taking a hit on your credit report, to paying pennies on the dollar under a cancellation of debt
Here is a pretty good website:
I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.
You are welcome.
because you got the benefit of not paying the bill in full, and the IRS considerers that benefit to be taxable, just as some employers consider the portion of health insurance they pay on your behalf to be a taxable benefit, and they include that in box 1 of your W2