Who needs an Insolvency Worksheet?
A person who wants to prove to the IRS the fact that their debts were canceled or settled should complete and file the Insolvency Worksheet.
What is the Insolvency Worksheet for?
When some or all of your debts are canceled by your borrower, you obtain a 1099-C form - it shows the amount of money that was canceled. The fact is that the IRS qualifies the reduction of debt as a result of increased income. The IRS implies that if the income increases, the amount of tax to be paid should be increased as well.
So, the aim of an applicant is to make this extra money not to be determined as the income, so that there will be no need to include it to the individual tax return.
Is the Insolvency Worksheet accompanied by other forms?
You should print out and include any proof for the fair market value of your assets and the balances of your liabilities including bank statements, online values, appraisals, balance sheets. You never know when the IRS is going to ask you to prove it.
When is Insolvency Worksheet due?
This form should be completed and filed when your debts were canceled. No specific deadline is set.
How do I fill out Insolvency Worksheet?
You should provide the following information in order to complete the form:
- Name of creditor;
- Amount of canceled debt;
- Total liabilities the day before the cancellation (credit card debt, vehicle loans, medical bills, business debts, etc..;
- Fair market value of assets owned the day before the cancellation (cash and bank account balances, residences value, computers, cars, tools, jewelry, clothing, etc..).
Where do I send Insolvency Worksheet?
Once completed, this form should be kept for person’s personal records and to be attached while filing the tax return.