The Biden Administration’s cancellation of debt on student loans is leading to increased taxes in many states. The general rule is that a cancellation of debt is considered a financial benefit. Under normal circumstances, this would be an income taxable event.
The law as proposed, has stated that this cancellation of debt will not be taxable at the federal level. But that has nothing to do with income tax at the state level.
Illinois has said that this forgiveness of debt will not be income taxable. But states like Wisconsin, Minnesota, and Kentucky will be collecting income taxes on these transactions.
Will any of this change before the new year? Probably. Plenty of tax law will go through a major metamorphosis after the midterm elections.
Whenever we see a change in political parties, there’s always new tax laws that get pushed through before the end of the year. We’ll see what happens to any of this in the next few months.
Let me leave you with this.
S Corp and Partnership returns on extension are due no later than September 15th of 2022. If you haven’t sent in the answers to your final year-end questions by September 1st, we cannot guarantee that your returns will be completed in a timely manner. Further, personal income tax returns, C Corps, and trust returns on extension are due by October 15th, 2022.
It should be noted that extensions only extend the due date of the return itself. It doesn’.t extend the due date of any payment that may or may not have been due. This continues to be the original due date of the return.
If you file a return on extension and owe money with it, there may still be a penalty assessed even if it is filed inside the extension date. If this occurs, there’s nothing that can be done.
Either way, please get your work into us as soon as possible. Around the extension due dates, we have a tendency to get rather busy. As such, the sooner we get your work in, the better it will be for everyone. I have a question for you.
*Words from our exceptional leadership
