Using TurboTax to file taxes in C13? Claiming insolvency?

[cspa522]

We have always used TurboTax to file our income taxes each year, never had any problems. I got a disk in the mail last week, from Turbotax, so I installed the 2010 program, and transferred over everything from last year that applies, etc.

However, after paying $65 for it I discovered that they can't really help us with forms 1099-C and forms 982. We were using a debt settlement company prior to filing BK in November, and settled with 3 of our credit cards (1 in 2009, 2 in 2010). My attorney told us that because we were insolvent at the time these settlements were made, we wouldn't have to count the settled amount as income on our taxes.

I went through, figured out what I thought I needed to do to claim insolvency (completing the form 982), and now TurboTax says "Consult a local tax expert concerning this matter."

So I paid $65 for a program I can't use and now I need to go to H & R Block or something? Anyone else had problems with this, and what did you do?

[LadyInTheRed]

I haven't had to do this, but I think you can still use TurboTax. If the entire amount shown on your 1099c is exempt, prepare your return with TT as if you didn't have any debt forgiveness, print and sign your return and attach your completed form 982 and file the return by mail. Form 982 is the only place the income appears if it is 100% exempt from taxation. If you have to claim part of the forgiveness as income, enter the amount that is taxable in TT as "other income" so it is included on line 21 of your 1040. Line 21 is where the Form 1040 instructions say to include 1099-C income.

[cspa522]

I haven't had to do this, but I think you can still use TurboTax. If the entire amount shown on your 1099c is exempt, prepare your return with TT as if you didn't have any debt forgiveness, print and sign your return and attach your completed form 982 and file the return by mail. Form 982 is the only place the income appears if it is 100% exempt from taxation. If you have to claim part of the forgiveness as income, enter the amount that is taxable in TT as "other income" so it is included on line 21 of your 1040. Line 21 is where the Form 1040 instructions say to include 1099-C income.

Thanks for your response. After a LOOOOOOOT of hunting and questioning via H & R Block's website, and TurboTax's, I think you're right. I'm going to call the IRS and double-check it before we file, but I think this is going to be the correct procedure. Thanks for the response!! Anyone else who has advice on this, feel free to chime in. I have no idea what I'm really doing.

[Charlie777]

The H&R Block product does handle Form 982. I was discharged last year and on the 2009 return I didn't list specific 1099c, I listed the entire value of my discharged debt from the filing, checking the "Title 11" box and the income went away. The way I see it, if the one 1099c I received comes up I've accounted for much more forgiven debt, and theoretically if my return were examined they could ask about ALL compromised debt, not just 1099c debt.

The situation is little more complex with settlements as opposed to BK. When you settle debts while insolvent you may have to reduce various tax attributes by the amount of income (basis for depreciation, loss carryforwards, etc.). As I recall you aren't asked to prove insolvency but I would have a worksheet as of when the debt was settled showing it just in case you are questioned.

[cspa522]

The H&R Block product does handle Form 982. I was discharged last year and on the 2009 return I didn't list specific 1099c, I listed the entire value of my discharged debt from the filing, checking the "Title 11" box and the income went away. The way I see it, if the one 1099c I received comes up I've accounted for much more forgiven debt, and theoretically if my return were examined they could ask about ALL compromised debt, not just 1099c debt.

The situation is little more complex with settlements as opposed to BK. When you settle debts while insolvent you may have to reduce various tax attributes by the amount of income (basis for depreciation, loss carryforwards, etc.). As I recall you aren't asked to prove insolvency but I would have a worksheet as of when the debt was settled showing it just in case you are questioned.

I went to the IRS website and printed out the entire section on declaring insolvency, etc. Plan to read through it soon, and fill out the worksheet they provide. Also, when I call the IRS I'll get more information there. I was just irritated that I paid for a product that doesn't readily seem to allow you to fill out the necessary forms. Had I known, I would have just used H & R Block. I may still. I want to see if I can do it via Turbotax, and if I can't understand it, I'll see if they'll refund my money and disable the product, then go somewhere else. Better safe than sorry. Thanks!

[Ifonly]

You really need to use a qualified tax professional for items like this. The people at H&R Block are not qualified tax professionals. Their "learn how to prepare taxes" course does not translate to my college degree and sitting for the CPA exam. Also, tax season is delayed for several groups of taxpayers this year. Anyone who itemizes, has a higher education deduction or claims an educator expense needs to wait until mid to late February to e-file.

[cspa522]

You really need to use a qualified tax professional for items like this. The people at H&R Block are not qualified tax professionals. Their "learn how to prepare taxes" course does not translate to my college degree and sitting for the CPA exam. Also, tax season is delayed for several groups of taxpayers this year. Anyone who itemizes, has a higher education deduction or claims an educator expense needs to wait until mid to late February to e-file.

My husband is currently a year from finishing his Master's in Finance and Accounting and will then sit for the CPA. Do you think between the two of us we can do this or do we need to have our taxes done by a qualified tax service?

[Ifonly]

Well, jeez, why is he making you do all of this research then? LOL Is this the old adage of the shoemaker's kids not having any shoes? ;-) I would think that he should be able to handle it.

[cspa522]

Well, jeez, why is he making you do all of this research then? LOL Is this the old adage of the shoemaker's kids not having any shoes? ;-) I would think that he should be able to handle it.

THAT is a very good question!! LOL He's the finance guy but I handle the bills and everything else. Probably because I'm a control freak?! Regardless. I'm hoping that once I call the IRS help line and get some advice through them we will be able to handle it (between my perserverance and his knowledge). Thanks again. If you think of anything else, PLEASE let me know!