The Agony & The Ecstasy:  1099 Requirements

Just when you'd heard that 1099 requirements had become more onerous and complex (they had), comes the news from the Feds that the expansion of 1099 reporting has been repealed.

This truly is one of the rare times I know of that the Taxpayers outcry and huge number of phone calls and e-mails to Congress was actually effective.  

The new rules would have required that a 1099-Misc be sent out, even if the goods or services had been purchased from a corporation - including payments for merchandise, which had not previously been the case.  This would have forced small businesses to track payments to individual vendors like OfficeMax on an annual basis, for everything they had paid for the previous year.  Any business paying more than $600/year to a corporation would have been required to send a 1099 to that corporation.  If it had been rolled out, the PPAC/SBJ acts would have increased the tax paperwork burden of small businesses enormously.

As more and more taxpayers have to negotiate on everything from credit card debt, to investment real estate, cars, boats, and homes they need to be aware of the tax consequences of receiving that 1099-C reporting the debt that has been forgiven.  This is a complicated issue since you need to look at your entire financial position both before and after the debt was forgiven.  If you were considered insolvent both before and after you probably will not owe taxes BUT this has to be done correctly.

If you had either a short sale or foreclosure, you could have some capital gains to report and possible recapture of depreciation is the property was a rental.  Primary residences receive the “Primary Residence Exemption” treatment. 

These computations need to be made before you make any final agreements so you are prepared.  Taxpayers also need to be aware of any State Income Tax or Capital Gain tax consequences if they live in a State with Income Taxes OR if the property is in a State with Income Taxes.