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Avoid These Six Debt Collection Pitfalls

Posted By Kenyatta Turner, LegalShield Independent Associate, Tuesday, May 24, 2016

Small Business News


Avoid These Six Debt Collection Pitfalls 

Your ability to collect a debt owed to your business hinges on the processes and policies you have in place. You can avoid some of the most common mistakes and improve your chance of successfully collecting a debt by understanding where problems often arise. Your LegalShield provider law firm is ready to help you understand the laws that govern collections, draft letters to debtors and assist you in taking further legal action if necessary. Call your LegalShield provider law firm if you need assistance with a collection matter or have any questions.

  1. “We didn’t have a payment policy or written contract.” Handshake deals and verbal agreements are difficult to legally enforce. It is essential to have a signed contract for any product or service for which payment will be made at a later date. Your contract or agreement should include a uniform payment policy. Your policy should include exact due dates or a timeline for payment, the name of the individual or business responsible, accepted forms of payment and any potential fees or interest for delinquent payment.

  2. “Our accounting records are a disaster.” Accurate and detailed records will help you quickly identify and manage delinquent accounts. Your customers and clients should know exactly where their account stands. Provide itemized invoices that include a specific due date for payment. If an account is delinquent, include the total amount owed, the number of days past due, the original due date and any late fees or interest owed.

  3. "We waited because we didn't want to upset the customer." If a customer's account becomes past due, consider placing a hold on the account and contact the customer. The longer a customer's account is delinquent and the more debt they accrue the more difficult collection becomes. You may have to make the determination to stop providing additional services or products until payment is made. Always remain professional and courteous.

  4. “We don’t have any documentation but I remember talking to the customer.” Good accounting practices will insure you retain copies of bills and invoices. You must also document your collection efforts. Your records should include letters and emails, as well as the dates and times of any phone calls or meetings. This information will be extremely important if legal action becomes necessary.

  5. “I was so mad I couldn’t stay calm.” Remain professional and friendly during each interaction with delinquent customers. It is illegal to threaten, harass or intimidate customers who are unable to make payment. Never threaten an action you are not willing or legally allowed to make. Making the issue personal or becoming aggressive will hurt your chances of successfully collecting the debt and could land you in legal trouble.

  6. “I didn’t really think the attorney could help.” Utilize your LegalShield small business membership. Call your provider law firm for assistance with collection matters. Your attorney can help you understand the law, draft a collection letter on your behalf, review your contracts and answer other legal questions you may have. If a collection letter does not resolve the matter, your provider law firm will advise you on additional legal remedies available to your business.  

 

For more information about LegalShield or IDShield for yourself, your family, your business, or your employees, please contact Kenyatta Turner, Independent Associate at 602-367-1069 or KenyattaTurner@LegalShieldAssociate.com.  Worry Less...Live More!

 

Tags:  accounting  Bookkeeping  contracts  CPA  debt cancellation  debt collection  family-owned business  finance  financing  legal advice  legal services  small biz  small business  Taxes 

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Debt Cancellation is Taxable Income – Yes or No

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Tuesday, March 1, 2016

 

Debt Cancellation is Taxable Income – Yes or No 

The best advice you can get – “It Depends”.  Discuss your personal situation with your CPA or tax advisor.  The IRS published tax tip 2016-30, on March 1 titled Top 10 Tax Tips about Cancellation.  Usually debt cancellation is taxable income; however, an exclusion may apply to homeowners who had mortgage debt cancelled in 2015. Even if the debt is not for your home, there may be other means to escape the debt cancellation taxability.  Following are what I consider pertinent:

1. Main Home. Does the debt cancellation pertain to your main home?  Was it for purchase of your home, or for improvements to your home?  Does your main home secure the mortgage?  A movie, nominated for best picture, ‘The Big Short’, is based on the housing collapse of 2007 and 2008.  The collapse resulted in new legislation in 2009 that is still in effect for 2015 and 2016, but scheduled to expire on Dec. 31, 2016.

2. Loan modification.  Debt cancelled or modified on your main home could be excluded as taxable income under the Home Affordable Modification Program, or HAMP.

3. Refinanced Mortgage. Did you refinance your mortgage and use the additional funds (up to the amount of the original mortgage) to improve your main home?  The debt cancellation may qualify under HAMP.

4. Other Cancelled Debt.  Other types of cancelled debt, i.e. credit card debt, rental mortgage debt, car loans or foreclosures, normally do not qualify for special exclusion.  However, other programs might be available to exclude those cancelled debts from being taxable.

5. Form 1099-C.  This is the form used to report debt cancellation to the IRS – it is due by February 1.  Did you receive a 1099-C from your lender?

6. Form 982.  Provides a form to attach to your tax return for discharged debt.  Title 11, bankruptcy is one course; however, debt could be discharged and not taxable if you are destitute or have qualified farm, business or residence debt.

Note:  More individuals are filing their own tax returns this year and not using tax professionals.  Individuals filing their own tax returns are more susceptible to identity theft since they do not have the safeguards in place as do tax professionals.  The IRS (IR 2016-34 issued March 1, 2016) estimates there has been a 400% surge in phishing and malware incidents so far this tax season. 

Tags:  debt cancellation  phishing  Taxes 

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