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Taxes, 1099-C's, and IRS payment Plan: Does the following strategy make sense?

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  • Taxes, 1099-C's, and IRS payment Plan: Does the following strategy make sense?

    Taxes, 1099-C's, and IRS payment Plan: Does the following strategy make sense?

    I am in a bit of a pickle when it comes to taxes this year.
    and having trouble figuring out what is the smart thing to do.

    Questions:

    1) Is it smarter to file in April or file for an Oct. extension given my current situation?

    2) Does the below strategy make sense? Have I forgotten anything?

    3) How does this situation affect my state taxes?

    4) Are all the documents listed that I would need to bring to A tax meeting ? Have I forgotten anything?

    __________________________________________________ ____________

    CURRENT SITUATION:

    1) I have an IRS payment plan for the last two years. Currently it is at $45 a month. for 2011 and 2012 for a total of $6,500

    2) I have had a bad last few months and I will not have the April 15th amounts due the IRS, or even possibly the state for this year either. 2013. est: 3-5K

    3) I received three 1099C's debt forgiveness (code G) this year (2013). If I do not declare insolvency I will owe tax on these. I qualify for Insolvency.

    4) I dont know if it is smarter to do all of this in april, or file and extension and do it in October.

    __________________________________________________ ___________________________

    THE SCENARIO THAT SEEMS TO MAKE SENSE:

    1) Fill out form 982 attach to 1040 and declare insolvency to not pay taxes on the 1099-C's

    2) Do taxes and send to IRS and state without payment.

    3) Call IRS and state and make a new payment plan.

    4) The other option is to file an extension for October and hope I can come up with more tax money by then and keep paying $45/m.

    __________________________________________________ _______________________________
    INSOLVENCY

    1) My three 1099-Cs show a cancellation date of 2013 with a code G

    2) Use the insolvency worksheet included in the 4681 Publication

    3) Download IRS Form 982. I will need one for each 1099-C.

    4) . The cancelled amount indicated on your 1099C Box 2 enter on line 21 of your 1040 enter 'Cancellaton of Debt' for 'type'

    5) . Check box 1b on form 982 (pay no attention to the 'not in a title 11 case') enter the amount from 1099C Box 2 on line 2 of your 982. You need to file a 982 for each 1099C but only enter the total from all on Line 21 1040. IRS needs seperate 982's to match up the totals from their copies of the 1099Cs.

    6) . Attach all 982's to your 2013 federal tax return

    7. Keep the worksheet from Publication 4681 - if you are audited your will need documentation of how your arrived at insolvency

    8) . Keep the copies and the original 1099C, you don't need to attach the 1099C to your return just have it on hand

    http://www.irs.gov/Forms-&-Pubs

    __________________________________________________ __________________________________________________ ________________________________________

    LIST OF THINGS TO BRING TO TAX MEETING:


    TAX DATA:
    Sole proprietor
    2 Main bank accounts. 1 biz, 1 personal
    HSA - that was not withdrawn from.
    no property.
    car - no payments.
    rent
    Have payment plan with IRS for 2011 & 2012

    GATHERED INFO THAT IS READY TO BRING TO ACCOUNTANT MEETING:
    1)
    biz Account
    personal Account
    ING
    HSA
    IRS PAYMENT PLANS
    TRANSCRIPTS FROM PAST YEAR.\
    Year end tax data from bank

    2) QUICKEN FILES RECONCILED:

    ACCOUNTS:

    BUSINESS ACCOUNT
    1) QIF file.
    2) register printed out for year
    4) itemized report
    5) catagories report
    6) profit and loss report

    PERSONAL ACCOUNT
    Qif file
    1) register printed out for year
    2) itemized report
    3) catagories report

    INSOLVENCY SHEETS:
    1099-cs
    1040
    982's
    Worksheet showing insolvency

  • #2
    Originally posted by slvnomore View Post
    1) Is it smarter to file in April or file for an Oct. extension given my current situation?
    It makes no difference, except that if you file in April, you can start a payment plan earlier. The fact that you might be able to come up with more money in October to pay the tax makes no difference. Your tax is late if you don't pay on April 15.

    Originally posted by slvnomore View Post
    2) Does the below strategy make sense? Have I forgotten anything?
    There's one thing that doesn't make sense, that I' will quote below. But, if you are going to have a CPA file your taxes, don't worry about how to fill out the forms. That's what you pay the CPA to do.

    Originally posted by slvnomore View Post
    3) How does this situation affect my state taxes?
    Ask your CPA. Somebody from IL may come along with a better answer.

    Originally posted by slvnomore View Post
    4) Are all the documents listed that I would need to bring to A tax meeting ? Have I forgotten anything?
    I would ask the CPA for a list of what you should bring.

    Originally posted by slvnomore View Post
    5) . Check box 1b on form 982 (pay no attention to the 'not in a title 11 case')
    It's your parenthetical statement that makes no sense. You are paying attention to that language because the debt was discharged by the creditor, not in a title 11 case (i.e., a bankruptcy case). If your debt was discharged in bankruptcy before the creditor discharged it, then you would check box 1a instead.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

    Comment


    • #3
      Thank you so much for your valuable time and wise council, it is much appreciated. I just thought if I did as much as possible before I take it to my CPA it would cost less and I would understand the strategy better. Thanks again I put a lot of work into making it clear, and I appreciate your fresh eyes ; )

      any tips on negotiating a payment plan with the IRS?

      Comment


      • #4
        Thanks for all your help. If I can't pay my taxes by April 15th, and I have an IRS payment plan already.
        What is the difference between the penalty and interest if i file an extension that gives me till oct. Vs filing april 15th but not paying?

        1) If I cant pay the new taxes anyway.
        2) Which will default my current IRS payment plan
        3) If I file and extension and meet with my CPA after April 15th.

        question: is there any other XTRA penalties or interest added because i filed an extension?
        trying to see any downside to not doing it by the 15th even though i don't have the money for the taxes. Thx,

        Comment


        • #5
          forgot one question:

          Will filing an extension, jeopardize my 28K in 2013 1099 -c from the OC that i plan to file insolvancy to not pay the tax on for 2013?

          Thanks!

          Comment


          • #6
            question about Insolvency.

            how do you determine what the amount of insolvency is to claim? For instance is if the date on the 1099 c's are 4/1/13
            that means I have to claim insolvency the day before that (3/31013) correct? Does that just mean my bank accounts? I mean How do I determine what that was from a whole year ago? Thx!

            Comment


            • #7
              You need to look at each debt cancellation separately. You could be insolvent when the first debt was cancelled, but not the second because the elimination of the 1st debt may have made you solvent.

              Your best source for information, besides your CPA, is publication 4681. http://www.irs.gov/publications/p4681/ch01.html
              Insolvency

              Do not include a canceled debt in income to the extent that you were insolvent immediately before the cancellation. You were insolvent immediately before the cancellation to the extent that the total of all of your liabilities was more than the FMV of all of your assets immediately before the cancellation. For purposes of determining insolvency, assets include the value of everything you own (including assets that serve as collateral for debt and exempt assets which are beyond the reach of your creditors under the law, such as your interest in a pension plan and the value of your retirement account). Liabilities include:

              The entire amount of recourse debts,

              The amount of nonrecourse debt that is not in excess of the FMV of the property that is security for the debt, and

              The amount of nonrecourse debt in excess of the FMV of the property subject to the nonrecourse debt to the extent nonrecourse debt in excess of the FMV of the property subject to the debt is forgiven.

              You can use the Insolvency Worksheet, found later in this publication, to help calculate the extent that you were insolvent immediately before the cancellation.
              LadyInTheRed is in the black!
              Filed Chap 13 April 2010. Discharged May 2015.
              $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

              Comment


              • #8
                Thanks for your patience, I am trying to get this right.

                so to wrap my head around this,

                If i have multiple form 1099-cs, from the same OC, say on 4/10, 4/11, and 4/12 2013, I can't just declare my insolvency date on 4/9/13 and include all 3?

                Comment


                • #9
                  Correct. You need to complete an insolvency worksheet for each 1099-C.
                  LadyInTheRed is in the black!
                  Filed Chap 13 April 2010. Discharged May 2015.
                  $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

                  Comment


                  • #10
                    thx. can I use the date before the first one as my insolvency date? as in my example of 4/9/13?

                    Comment

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