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Posts Tagged ‘income taxes’

Accepting a settlement offer from a credit card company will negatively impact your credit rating and lower your credit scores. The reason for this is that when a settlement occurs, a creditor has agreed to accept less than the full amount of money owed to it – even though the creditor, internally, will consider the balance as paid. Externally, however, two potentially harmful things occur for the consumer. First, the creditors immediately reports to the credit bureaus that your account was “Settled” “Settled for Less Than Owed,” or “Paid by Settlement” – all of which tarnishes your credit records with Equifax, Experian and TransUnion. Additionally, any amounts “forgiven” during a settlement are usually reported to the IRS. When this occurs, the IRS considers monies “saved” during a settlement to be income. Therefore, you also therefore have to pay income taxes on the amount of money you “saved” during a settlement.

Check the “Status” Notations In Your Credit Files

If you have “settled” any accounts over the past seven years, through direct negotiation with creditors – or perhaps as a result of using a debt settlement company – you should check your credit files to see how those settlements were reported.  One of the most important sections of your credit report is the “Status” references to whether you’ve paid your debts on time, or whether you’ve been late – and if so, how late. Upon examining the “Account Summary” area of your credit report, that is where you will find “Status” notations.

Your payment history is shown on your credit reports as your “Account Status,” “Current Status,” “Pay Status” or just simply “Status.” Open accounts with no delinquencies will have these types of “Status” comments: “Pays as Agreed,” “Never Late,” or “Current.” Closed accounts with a positive credit history will be noted as “Paid As Agreed,” or “Pays As Agrees.”  Negative information will most commonly be stated as 30, 60, 90 or 120-day late payments. Other negative comments include: “Collections,” “Settled,” or references such as “Paid, Was 60 Days Late”. If an account has been “charged off” or written off by a creditor as uncollectable, that fact will be noted too, typically along with the dollar amount charged off.

In short, any notation in your credit file that indicates that you did not pay your debts exactly as originally agreed will be viewed negatively by credit-scoring firms, and potential lenders.

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Q: My Husband Is Planning to Work Overseas Soon, Maybe for a Total of 2 Years. How Will This Affect Our Income Tax?

A: Without knowing the details about your situation, it’s very hard to say the impact that working overseas will have on your income taxes. It depends on several factors, not the least of which are: the exact country in which your husband will be working, how he is compensated, and whether or not he is deemed to be an employee or an independent contractor. Regardless of these considerations, U.S. citizens are legally required to pay taxes on all income, no matter where it is derived or generated (i.e. either domestically or overseas).

Lowering Your Tax Bill

To potentially lower your tax bill, find out three things:

•    Is There a Reciprocal Tax Agreement With the U.S.?
Some nations have reciprocal tax treaties and agreements with the United States; other countries do not. If a U.S. worker is employed overseas in a country that does have a reciprocal tax agreement with American, then that worker may be eligible to get a tax credit for taxes paid to that foreign country.

•    Is His Pay “Grossed Up?”
Many employers will “gross up” an employee’s pay when that person is working overseas, relocating, or doing something else to benefit the employer – which in turn, may negatively impact the employee, from a tax standpoint. So it’s important to know whether your husband’s pay will include added compensation to essentially cover his income tax bill.

•    Is He Considered an “Employee” or an “Independent Contractor?”
Your husband’s taxes will also be determined by his employment status as either an “employee” or an “independent contractor.” Each has its pros and cons form a tax standpoint. And each may be afford certain tax benefits and deductions not provided to the other. For instance, an employee may get a deduction for relocation or moving expenses; whereas an independent contractor may be able to write off some of the same business expenses as entrepreneurs and self-employed individuals.

Once you find out the answers to these three important questions, then you can begin to do some appropriate tax planning. Also, since this situation involves a far more complicated set of financial and tax considerations than normal, I would strongly advise you to also consult a qualified tax professional.

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