ARE YOU HAVING DEBT CANCELED? MAKE SURE IT’S TAXED CORRECTLY! FTR TAX TIP OF THE MONTH
ZESTY ORANGE CRANBERRY SAUCE
In September, a new client contacted me to see if I could help him out with a tax liability from 2014. The client is disabled and receives two types of disability pay. He normally has a straightforward tax return and files it himself. For years, the process has included just three forms. However, 2014 was different because he had $45,000 of student loan debt forgiven! He received a Form 1099-C (Cancellation of Debt) from the student loan lender, but he didn’t know how to handle it on his tax return. So, he hired a tax return preparer from a large CPA firm in Racine to complete the 2014 tax return for him in April 2015. Unfortunately, the tax return preparer didn’t know how to handle the Form 1099-C either! He included the $45,000 of canceled debt on my client’s tax return as “income,” which meant the client owed over $13,000 to the IRS and $2,500 to the state of Wisconsin. The issue was that the preparer failed to determine whether my client was insolvent right before the debt was forgiven. If a taxpayer is insolvent (if his liabilities are worth more than his assets), a Form 982 should be included with the tax return so the canceled debt isn’t counted as taxable income. My client was insolvent. He had a $500 car lease payment, owed $900 a month in rent, and had $4,000 in the bank. He had no retirement assets. The $45,000 shouldn’t have been taxable — he should have owed the IRS just $250 and received a $500 refund from the state. But because his return was prepared improperly, my client paid the state $2,500 and started paying the IRS $150 per month. To fix this, I filed an amended tax return to remove the $45,000 of income based on the insolvent claim and included Form 982. We should be able to get back all of the money he has paid the IRS so far, but getting the $2,500 back from the state is going to be difficult because the payment was made years ago. Long story short, when you’re in an unusual tax situation, hire a preparer who cares about the details! To a big firm you may be just a number, but to a little guy like me, every little thing matters — as it should.
Inspired by OnceUponAChef.com
Skip the can-shaped cranberry sauce this year and bring a jar of homemade sauce to Thanksgiving instead. This easy recipe can be made ahead of the big event and keeps for 10 days in the fridge.
INGREDIENTS
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1/2 cup orange juice, freshly squeezed
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12 oz fresh cranberries
2 tsp orange zest
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1/2 cup water
Salt to taste
3/4 cup plus 2 tbsp sugar
DIRECTIONS
1. In a medium saucepan, heat the orange juice, water, and sugar to a boil. Add other ingredients, then bring mixture back to boiling.
2. Reduce the heat to medium and cook gently for 10–12 minutes, until the cranberries burst.
3. Transfer the sauce to a bowl or jar, cover, and refrigerate until serving.
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