Is There A Connection Between Tax And Credit Card Spending
Most people at one time or another have had a credit card. They know that the money available to them on the credit card is for spending, but how many of them think whether there is any connection between taxes you pay and the amount they spend on the credit card.
Most people when asked to think about the connection between taxes and credit card spending automatically think of the obvious connection, the sales tax charged on the goods and services purchased on their credit cards.
This is true if everyone maintained their credit cards and paid off the balance at the end of the month or if they can pay the monthly charges and interest due. But it can happen, especially in these economic times that they sometimes max out the credit cards and are stuck with the high interest and charges. They may find themselves in credit card debt to such an extent that there may seem to be no hope or relief in the monthly payments. For many people in such a situation negotiating with the credit card company to settle the debt for a lesser amount seems like the wise thing to do to end the nightmare that the debt has become.
However, if you manage to negotiate the credit card debt with your credit card company and they forgive you an amount, which is $600 or more of the debt you owe then that amount has to be included in your tax return as other income. The IRS considers the cancellation of any credit card debt of $600 or more as income earned by you and you have to include it as such on your return along with form 1099-C and pay the taxes on this so called income.
There is a connection between tax and credit card spending, as sales tax when you purchase anything on your credit card and as other income if you negotiate your credit card debt and manage to reduce it by $600 or more. In neither case do you the tax payer benefit from either connection.
comments
You got something to say?