The 1099-C, which comes to taxpayers who have settled debts in the past year, can be scary. But it's possible the form was sent by mistake or that you don't have to pay.
This post comes from Christine DiGangi at partner site Credit.com.
If you settled an outstanding debt in 2013, you may have more paperwork to fill out.
Creditors who forgive debts of $600 or more are required to file a Form 1099-C Cancellation of Debt, because the Internal Revenue Service says you must include canceled debt in your gross income. You then have to pay taxes on that so-called income, unless you qualify for an exception.
"Getting a 1099-C to pay taxes on a debt you couldn’t pay in the first place is terrifying," said Gerri Detweiler, Credit.com director of consumer education. "If you couldn’t pay the debt, what makes the IRS think you can pay the taxes?"
Understanding the 1099-C
The IRS estimates more than 5.7 million 1099-C forms will be filed for tax year 2013 (some consumers may receive more than one), but not everyone with a canceled debt receives one.
Regardless, you still need to deal with the form if you’ve settled debt for less than you owed, sold your home in a short sale for less than it was worth, went through foreclosure on a home worth less than what you owed on it, or if you didn’t pay anything on a debt for at least three years and there was no collection activity in the past 12 months.
Thanks to 2013's government shutdown, the IRS will not start processing returns until Jan. 31. If you want your refund as soon as possible, there are ways to submit your forms early.
Most taxpayers get refunds every filing season. Last year, the average federal tax refund was $2,651.
That's a nice chunk of change, so it's no surprise that the millions of folks who expect money back from Uncle Sam tend to file in January.
It's also no surprise that this year these early filers are upset that they have to wait until Jan. 31 for the Internal Revenue Service to start processing tax returns. The delay is due to the federal government shutdown back in October, which slowed down the agency's updating of forms and testing of its computer systems.
Some taxpayers, however, aren't waiting. They are getting a head start on their tax return preparation so they'll be at the head of the line when the IRS does open its electronic filing doors on Jan. 31.
And popular tax preparation software and franchise tax offices are helping these filers.
Free File's income eligibility limit has been increased to $58,000 -- $1,000 more than last year.
Taxpayers who want to take advantage of the Internal Revenue Service's free tax preparation e-filing program won't have to wait. The Free File program opens to taxpayers on Jan. 17, two weeks before the IRS starts processing 2013 tax returns.
The IRS will not start processing any tax returns until Jan. 31. The government shutdown in October 2013 slowed IRS updates of forms and tests of its computer systems, leading officials to push the official opening of this year's filing season to the end of the month.
But that doesn't mean taxpayers have to sit around. Free File companies will hold taxpayers' completed tax returns and then submit them on Jan. 31.
The early opening of Free File is good news for millions of eligible taxpayers. They are among the group of electronic filers, which increases every year, primarily because they can get their refunds more quickly.
And for the 2014 filing season, a few more taxpayers should be able to use the Free File option. The income eligibility limit has been increased to $58,000. That's $1,000 more than last year.
Estimated tax payments are usually required if you meet certain criteria.
I have a full-time job, but I also did some contract work last fall and got a check ($5,700). I know I need to pay taxes on that income, but I am not sure if I need to pay estimated taxes right now or if I can wait until I file my tax return in February. Should I just increase my withholding on my part-time job until then? Does it make sense to increase withholding or pay estimated tax? -- Jessica
Since you have a full-time job that withholds taxes, at the end of the year your employer reports your income and withholding on a Form W-2. When you do "contract work," this type of income is not subject to withholding and in January you will receive a Form 1099 reporting the amount of income you received.
Before you start preparing your 2013 tax return, review these important updates.
Time marches on, and you'll soon be receiving your 2013 W-2 and 1099s. So it's not too soon to start thinking about putting together your Form 1040 for last year. As you do, please take note of the following key federal income tax changes that took effect in 2013.
New higher tax rates for upper-income individuals
For most individuals, the 2013 federal income tax rates are the same as for 2012: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent. However, the American Taxpayer Relief Act (ATRA) increased the maximum rate for 2013 to 39.6 percent. That rate only affects singles with taxable income above $400,000, married joint-filing couples with income above $450,000, and heads of households with income above $425,000.
Smartphones can help keep track of receipts, donations and even your refund status.
Tax-filing season is upon us, and it's easy to be overwhelmed by all the forms, documents, and information you need to collect. Luckily, there are dozens of mobile apps designed to help.
Some are great for keeping yourself organized throughout the year, while others don't come into play until you're ready to file or want to check on the status of your returns.
Here's a look at our 10 favorite tax-prep apps for 2014:
Platform: iOS, Android
Cost: lite version is free; premium packages start at $9.95/month
How it helps: This app lets you digitize and archive receipts and other paper documents into a categorized, searchable, IRS-accepted database for easy access during tax time. You can snap photos of your receipts and email them in, or send hard copies to the company via mail for processing.
Maxing out these traditional tax shelters at the beginning of the year will pay off big time thanks to tax-free compounding.
This is the first full business week of the new year, and the first thing you should do once you finish the word week is make your 2014 contributions to your traditional or Roth IRA, Coverdell account, 529 college savings plan and/or health savings account.
Thanks to the miracle of tax-free compounding, by making your contribution as soon as possible in the beginning of each year you will have substantially more in the account by the time you are ready to retire, or when you need the money to pay for education or medical bills, than if you wait till the last minute.
Shoppers in Indiana, Nevada and Tennessee will now see a sales tax line added to their online invoices.
Attention online shoppers in Indiana, Nevada and Tennessee. I hope you stocked up on your orders from Amazon before 2014 arrived.
As of Jan. 1, the online retail giant is collecting taxes on products purchased by residents of those three states.
That brings the number of states in which Amazon collects sales taxes to 19. The others are Arizona, California, Connecticut, Georgia, Kansas, Kentucky, Massachusetts, New Jersey, New York, North Dakota, Pennsylvania, Texas, Virginia, Washington, West Virginia and Wisconsin.
More state sales taxes coming?
Will shoppers in the rest of the United States see a sales tax line added to their Amazon and other online invoices in 2014? Possibly.
In the states where it has agreed to collect sales taxes, Amazon has expanded its physical presence, generally by building warehouses or distribution centers. Those structures provide the necessary legal nexus for states to demand tax collection.
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