Here is a summary of the October tip of the month for your tax expenses:
1. Student loans are often tax-deductible.
Every spring, student loans can provide an income tax break for you. If you took out a loan entirely for the purpose of paying for education, you may deduct up to $2,500 of the interest per year (or however much you paid last year—whichever number is lower) as long as you’re paying the interest and your filing status is not married filing separately.
2. Forgiven credit card debt is taxable income.
Let’s say you owed $15,000 in credit card debt last year, and the company allowed you to pay a reduced rate of $9,000. That’s a huge relief—until the IRS sends you a 1099-C form or “cancellation of debt” tax notice. The IRS sees canceled debt as income, so you will be required to pay federal income tax on that $6,000 you were forgiven. There are a few exceptions, though. If your liabilities exceed your assets or your debt was absolved during bankruptcy, you’ll be exempt from this tax up to the point you are insolvent.