What you should know about credit cards and taxes
There isn鈥檛 much that involves your finances that Uncle Sam doesn鈥檛 expect you to report come tax time. That can even include money or rewards via your credit cards. Here are the two things you should be aware of when it comes to your accounts and tax season:
1. Forgiven debt is taxable.听
听
If you鈥檝e worked with a creditor in the past year to reduce your debt balance in order to pay it off, you may have to claim the portion of the debt that was deducted. If your savings was over $600, you should have received a 1099-C notice in the mail, which reports the amount of the cancelation of debt. The figures on these forms need to be reported as income, and included with your tax return.
听
Because working out a deal with a credit card doesn鈥檛 seem like the same thing as earned income, many people in this position don鈥檛 realize they need to claim it on their taxes, and therefore open themselves up to audits. In short, if your creditor reduced your debt, get in touch and see if there鈥檚 a 1099-C you should be recording on your returns or bringing to your tax accountant.
2. Rewards (like all those airline miles) might be taxable, but probably aren't.
More and more credit companies are boosting their rewards听programs, with everything from bonus airline miles, to redeemable points on merchandise, to cash back. Do you have to claim those rewards on your taxes as income? The short answer is no. Because you鈥檙e receiving discounts and even cash for purchases you made, rewards are tax-free.
Here鈥檚 what is considered income and must be claimed: Cash rewards or merchandise/airline points given by banks to recruit you to open a new account, if it鈥檚 worth more than $600. If you received a generous promotional reward, you should have received a 1099 from the bank.
As for all of that credit-card interest you paid all year long? Sorry, but you can鈥檛 claim that on your taxes. These credit-card-related tax rules will not affect the majority of people, but if you do receive 1099-C or 1099 forms in the mail, don鈥檛 assume they're junk mail. Incorporate them in your tax return.
鈥� Daniel Tulbovich is co-founder of . He writes frequently on credit-related topics.
