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Gone through debt settlement? Did you include it on your income tax return?

If you went through debt settlement, you need to make sure you receive your 1099-c for it. If you don't include it on your tax return and you should have you could be looking for trouble.

Don't count on the debt settlement company to get this to you. You need to ask for it if you don't have it. Read on to learn more. And don't forget to talk to your tax professional to verify whether you do or do not need this on your tax return.

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Settled debt overlooked as income source on tax forms

Tax advisers are warning that many Americans could be at risk for audits or other penalties, simply for overlooking settled debt as income.

Tax advisers worry that people might overlook 1099-C forms or "cancellation of debt" tax notices. Persons who reached a settlement with lenders in 2009 for credit card, mortgage or auto loan debt receive this form to file with their taxes as a source of income.

Since it isn't the IRS, but debt collectors and creditors that issue 1099-C forms by the mail, many accidentally throw it out.

"Depending on the amount of debt forgiven, the taxpayer's income level, deductions and other factors, the consumer could face a sizable tax bill come April 15. Few consumers are aware of the tax implications of settling to pay a lesser amount than they owe in credit card debt, and never expected their debt settlement would be considered income," says Ben Woolsey, Director of marketing and Consumer Research for CreditCards.com.

The amount of 1099-C forms filed is expected to go up for 2009. In 2008, 1.987 million filed this form, but for 2009, it is expected that 2.5 million need to file.

To make sure this form isn't overlooked or misunderstood, speak with tax advisers before settling debt, check snail mail closely and discuss what exempts a person from this form with tax advisers.

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Related articles on line.

• Here's the tax bill for forgiven debt (money.cnn.com)
• FTC Tips for Consumers Weighing How to Settle Their Credit Card Debts (ftc.gov)